Fuel Costs

Monday 7th February 2011 Commons Chamber

[Mr Speaker]

I inform the House that I have selected the amendment in the name of the Prime Minister.

16:31

[Stewart Hosie (Dundee East) (SNP)]

I beg to move,

That this House notes that the oil price has reached $100 a barrel, and that diesel in the UK is the most expensive in Europe; further notes that the combination of the 1 January 2011 duty rise and the increase in value added tax is estimated to have added 3.5 pence to the cost of a litre of fuel; acknowledges the sharp rises in fuel prices over the past year and the resulting impact on headline inflation figures; recognises the financial pressure this places on hard-pressed families and businesses already struggling with high inflation and the impact of the recent rise in value added tax; condemns the Government’s continued dithering over the implementation of a fuel duty regulator (or stabiliser) as neither a sustainable or stable way to make tax policy; further recognises the specific additional fuel costs for those living in remote and rural parts of the UK; is concerned that diesel in such places is approaching £7 per gallon; condemns the Government for its failure to prioritise the implementation of a fuel duty derogation; and calls for the introduction of a fuel duty derogation to the most remote areas at the earliest opportunity.

The issue of high and spiking fuel prices is one of major concern around the country, as we can witness from the campaigns run by national and local newspapers and by campaign groups local and national the length and breadth of the country. Those campaigns—my favourite is the “fight for fairer fuel” run by The Courier—are not driving public opinion but reflecting it.

I was taken by the front page of the newspaper a week or so ago, which stated, “Osborne ‘may override 1p fuel duty increase’”. The Chancellor had clearly been listening to some of the concerns that had been expressed. The newspaper went on to report that when he was asked on a local radio station if he could do anything about fuel duty, he said:

“We can over-ride it, we are looking at that.”

He also seemed to confirm that Ministers were looking into a fuel duty stabiliser so that, as he said,

“the Government steps in to try to protect people from the effects”

of volatility at the pumps.

[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

It is not just the Dundee Courier; the Stornoway Gazette is admirably drawing attention to rural fuel derogations in some areas of Europe, particularly Mediterranean islands that do not have the same fuel demands as the north of Scotland. The question has been raised why the matter is taking so long, why it is stalling in the European Commission and why the UK Government are not moving as efficiently and effectively as some European Governments in respect of their citizens’ needs.

[Stewart Hosie]

I will come to the rural fuel derogation in the second part of my comments, but in relation to the Stornoway Gazette, I am sure that there are many other such campaigns. My hon. Friend’s point reflects what I have just said—this is an issue of extreme concern in many parts of the country.

I was explaining that The Courier reported that the Chancellor had suggested that the Government were looking into a fuel duty stabiliser. I was about to say “so far, so good”, but unfortunately the next paragraph of the newspaper’s front page read:

“The Treasury later played down any suggestion that the Chancellor was announcing any intention to scrap the rise”.

The Government’s position is clear as mud.

Although the scrapping of a single rise would be extremely welcome, it is not what is fundamentally needed. We need a permanent fuel duty regulator and a stabiliser mechanism that is always in place to smooth out spikes when prices rise at the pump. It is not that the Government do not know that that is needed, because in the very same article, the Secretary of State for Business, Innovation and Skills is quoted as saying, I believe at a Press Gallery lunch:

“It is quite likely that we are going to get a nasty period of high fuel prices.”

I say to him that we are not going to get that; we already have a nasty period of very high fuel prices.

In January, diesel in Stornoway was £1.42 a litre—that is almost £6.50 a gallon. In Aviemore, in the Chief Secretary’s constituency, the price was £1.38 a litre, which is nearly £6.30 a gallon.

[Mr MacNeil]

Those prices almost seem cheap now. They have gone up to £1.45 and £1.46 a litre. At Benbecula airport today, I spoke to Rhoda Macauley, who lives in Daliburgh and has a 50 mile round trip to work at the check-in, and is seriously considering whether working is worth her while, such is the price of fuel.

[Stewart Hosie]

That does not surprise me. In previous debates, after we have experienced high spikes, several Members in the House and elsewhere have reflected their constituents’ views that they had almost reached the point when it was not worth going to work, particularly in rural areas with long distances to travel—I will deal with that later—because of the price of fuel. However, that applies not just in Stornoway, Aviemore or my hon. Friend’s constituency. In Dundee last week, I paid more than £1.33 a litre—more than £6 a gallon in the city. That is now not uncommon, and it is unsustainable. It is inflationary, decimates family budgets and puts untold pressure on many businesses and business sectors. It is having a catastrophic effect in remote and rural areas. That is why we call on the Tory part of the Government to keep its promise to consult on and deliver quickly a fuel duty stabiliser, and on the Liberal part of the Tory-led Government to keep its promise to deliver a fuel duty derogation for remote and rural areas.

I have said that the high fuel prices are bad for business. The Federation of Small Businesses has told me just how bad. According to its January poll of members, should fuel prices continue to rise, 62% of those polled said that they would be forced to increase their prices; one in 10 suggested that they may lay off staff; more than a quarter said that they could be forced to freeze wages; more than a third said that they would have to reduce investment; and 78% said that rises would put overall business profitability in jeopardy. When we are trying to grow our way out of recession and into sustainable recovery, that is the wrong thing to do.

[Mr Mike Weir (Angus) (SNP)]

I very much agree with my hon. Friend. However, is not the position even worse, given that people in many rural areas and constituencies such as mine have no alternative but to move goods by road? There is simply no other way of getting goods to our towns, which are not served, apart from the coast, by the railway line.

[Stewart Hosie]

My hon. Friend is absolutely right. In many parts of his constituency, goods must be moved by road. The days of rail terminals in Brechin or Forfar that would take freight are sadly long gone.

[Mr Weir]

I also point out that the idea that the goods can be moved by rail is flawed in any event because although, as my hon. Friend knows, a rail line goes through the coastal part of my constituency, there is no longer a goods terminal in Arbroath or Montrose, the two stations there. There is no alternative to road transport.

[Stewart Hosie]

My hon. Friend is right, and I am sure that hon. Members throughout the House will have examples of infrastructure that used to exist, but is no longer there, with the result that 100% dependence on roads is now the case.

[Hywel Williams (Arfon) (PC)]

Does my hon. Friend accept that the high prices also affect rural businesses, where petrol, diesel and other goods, such as groceries, are sold? Those businesses are hit by not only the price rise in fuel, but the cost of carrying goods to their shops. That is a dreadful burden for businesses in rural communities.

[Stewart Hosie]

That is absolutely right. The price is hugely inflationary in rural areas. It is also a problem in some of the poorer parts of our cities, where car ownership is remarkably low. It means that some people with modest means do not even have the ability to travel to a supermarket, where there may be discounted goods. Instead, they are forced to pay higher prices in certain urban centres. That should not happen.

[Sajid Javid (Bromsgrove) (Con)]

The hon. Gentleman is right to raise this issue and to talk about the impact of high fuel prices on hard-pressed families, but he will know that fuel duty raises about £30 billion for the Exchequer, and that a 1p increase in duty raises about £500 million. His case would be far more powerful if he could outline the public spending he wants to cut so that fuel duty can be cut, because that money must be made up somehow.

[Stewart Hosie]

The hon. Gentleman makes the same point that the Labour party used to make—something must be cut to fund the Scottish National party proposal. However, the SNP argues that when the price at the pump increases, there is a VAT windfall. In any circumstances, we know that there is likely to be a windfall in excess of £1 billion from the North sea. We believe that that should be used to temper duty increases and to lower the duty level, so that the yield anticipated by the Government does not decrease, and to smooth the effects of the spiking at the pumps.

[Sajid Javid]

rose—

[Stewart Hosie]

I shall move on a little. I have been generous, and I will give way again in a little while.

I was talking about the impact on business and the information provided by the FSB. As I said, 78% of its members who were surveyed in January said that the increase in duty would have an impact on them and put business profitability in jeopardy, which is the wrong thing to do when we are trying to grow our way out of recession. I would have thought that this Government would want to listen to the views of the FSB, not least because small businesses in the UK provide 90% of all our enterprises, and in Scotland they provide 50% of all jobs. They will be engines of recovery in this country.

John Walker, the UK chairman of the FSB, and Andy Willox, the FSB’s Scottish policy convenor, said:

“Scottish small businesses want to grow, innovate and create employment but the cost of fuel puts the brakes on their ability to drive the recovery…Every extra penny spent at the pumps is a penny not being spent elsewhere in the economy and our members are finding it hard to plan for the future, as well as survive the present, due to the spiralling cost of fuel.”

[Mr Brian Binley (Northampton South) (Con)]

I am most grateful to the hon. Gentleman for allowing me to interject a little on the question of small and medium-sized business. I agree with his thrust that they are vital and that they will provide the jobs growth that the growth agenda requires. However, will he join me in expressing concern that the four increases in fuel duty are not as necessary as we were told they were by the then Government? Does he agree with that?

[Stewart Hosie]

I believe that the SNP opposed a number of the fuel duty increases. The hon. Gentleman may have been an honourable exception—I hope he was—but my memory tells me that Tory FrontBenchers abstained on some of those increases over the past few years when they were in opposition. He is generally right, but as I said, the debate is not about the cancellation or postponement of a single increase, however welcome that is, but about the implementation of a permanent stabilisation mechanism. Mr Willox said of that debate that:

“The FSB is right behind all moves to introduce a fuel duty stabiliser.”

[Robert Halfon (Harlow) (Con)]

I thank the hon. Gentleman for giving way on this very important subject. The Government pay around £7,000 per head per taxpayer in England, and yet they pay £8,500 for every Scottish taxpayer. Does he agree that if that subsidy were reduced, we would have more money across the country to cut fuel duty?

[Stewart Hosie]

I am always surprised when otherwise articulate, able and intelligent Members do not see the whole picture. When one looks at total tax and total income, rather than the mere, modest fragment of net identifiable expenditure, one sees a rather different story. Prior to the recession—independent figures stand this up—Scotland was about £50 billion in, £50 billion out. As the hon. Gentleman will recall, the UK ran a £0.5 trillion debt before the recession, so his argument is not particularly helpful, and nor does it really pertain to today’s motion.

Of course, some business sectors are hit rather harder than others. Some businesses have a little leeway in their pricing policy, but some have none. I was struck by the comments of Bill McIntosh, the general secretary of the Scottish Taxi Federation, who said:

“Taxi drivers”—

it is an important trade—

“are affected more than most by increases in fuel. Unlike other transport operators, taxi drivers can’t just raise their prices as fares are set by local authorities…The Scottish Taxi Federation welcomes and supports the proposal for a fuel stabiliser.”

That is important. The sector has a fixed pricing structure that it cannot adjust and rising input costs.

Many haulage firms—this is an extreme example—have already agreed long-term future contracts with a fixed price. There might be some variation, depending on the uplift in fuel, but it is unlikely, under the contractual arrangements, that they could be compensated for the very quickly and steeply rising input prices. In my view, the haulage sector suffers the largest single impact. According to the Road Haulage Association, operating costs have risen by 3.3% since last October. It tells me that fuel accounts for more than a third of the sector’s business costs, and that, in cash terms, an average rise is expected this year of £4,206 on the basis of increases over the past three months alone. That is quite extraordinary—an increase of £4,206 in the running costs per truck.

I suspect that that is why Phil Flanders, the Scottish and Northern Ireland director of the RHA, has said:

“The RHA…supports the SNP/Plaid Cymru motion to urge the Government to take immediate action to resolve the increasingly difficult situation that hauliers—and motorists—find themselves in due to the cost of fuel.”

He went on to say that it has always supported these

“proposals for a fuel duty regulator in order to bring stability to the costs of a haulage business where fuel”

in some places

“can account for around 40% of running costs…Whatever it is called—a stabiliser or a regulator”—

or a modulator—

“help is urgently needed for all hauliers and particularly those further from their market such as those in Scotland, Wales and Northern Ireland. Remote rural communities also deserve special help given the exorbitant price they have to pay.”

I will say more about that later. He continued:

“It cannot be stressed strongly enough that in the past year fuel prices have gone up by at least 14% and in the last 28 months there have been 8 fuel duty hikes amounting to a 25% increase. This is just simply unacceptable for the economy.”

I share that view entirely.

The Freight Transport Association has followed up that support and welcomes the effort

“to develop the fuel duty debate further. Lives and livelihoods up and down the country are suffering in the face of unsustainable and crippling fuel costs. For businesses still in the grip of tough trading conditions these costs severely restrict cash flow and a company’s ability to do business; sadly this can translate to job losses and the difference between solvency and insolvency.”

It says that when the price of fuel

“rises steeply it has an immediate impact on a company’s cash flow.”

Given how the banks are behaving, with credit tight and squeezed, cash flow is vital.

The FTA also says:

“As part of the Fair Fuel UK Campaign, the Freight Transport Association and the Road Haulage Association, along with backing from the RAC, are asking government principally to scrap the fuel duty rise planned in April and introduce a methodology for stabilising fuel prices.”

Indeed, Fair Fuel UK, which is supported by 20,000 road freight companies, the Royal Automobile Club, dozens of trade associations, other groups and tens of thousands of individual motorists, has said that it supports today’s attempt to raise this issue and its impact on the economy on the Floor of the House. It said that this

motion and debate will…add pressure to the Government to act”,

and act quickly, on what it calls a “fuel crisis”. There is no doubt that this is a crisis. It is also clear that there is not only an assessment of a real, immediate and serious problem, but a clear coalescing of those at the front line about the introduction of a stabiliser as the primary solution.

This is about not simply a fuel duty regulator or stabiliser, however, but the specific problems in remote areas.

[Mr Alan Reid (Argyll and Bute) (LD)]

The hon. Gentleman has outlined the problem, but he has not given the solution. He has spoken for 18 minutes, but has not told us how a stabiliser would work. I would like to hear how it would work, so will he please explain it to us?

[Stewart Hosie]

The hon. Gentleman has been here long enough to know that this is an Opposition day motion. If he waits until the Finance Bill, I am sure that both I and his hon. Friends will be happy to put forward detailed proposals and provisions, as we have all done on a number of previous occasions. Had he been listening to my response to an earlier intervention, when I explained how the proposal was due to work, he would know that we suggested it in 2005. We presented an amendment in 2008, and the then Conservative Opposition proposed something similar in July 2008. If he holds his horses, I suspect that we will have the detailed provisions for such a mechanism soon enough.

[Mr MacNeil]

Will my hon. Friend give way?

[Stewart Hosie]

I am going to make some ground.

This motion is not simply about the fuel duty regulator; it is about the problems in remote areas, where there is no choice but to drive. In a debate on introducing a rural fuel derogation in 2006, the argument was put as follows. The purpose of the proposal—on that occasion contained in a new clause—was to

“enable the Treasury to specify lower rates of duty on fuel to apply in remote rural areas. Hon. Members will know that article 19 of the European Union’s energy products directive allows member states to apply for a derogation to allow lower duty rates in specified areas. In October 2004, the French Government, with the support of UK Ministers and Ministers of other member states…did just that, following the example set by the Portuguese and the Greek Governments in previous years.”

The argument for applying such a measure in the United Kingdom rested on

“the very serious economic impact that higher fuel prices in rural areas have on areas such as the highlands and islands of Scotland. The truth is that people…in remote areas such as the highlands and islands are victims of a triple whammy. They pay higher fuel prices and have much longer distances to travel, with few or no alternatives to making those journeys by car. Unavoidably, they spend more on transport than others and therefore also contribute more to the Treasury. Motoring costs represent some 18 per cent. of total household expenditure in rural Scotland compared with 13 per cent. across the rest of Scotland.”—[Official Report, 4 July 2006; Vol. 448, c. 738-39.]

Those were not my words; they were the words of the current Chief Secretary to the Treasury. I am disappointed that he is not here to stand by his words and make a commitment to drive forward a rural fuel derogation at the earliest possible opportunity.

[Mr Reid]

rose—

[Stewart Hosie]

Before the hon. Gentleman gets to his feet, let me remind him that when the Liberal party last proposed a rural fuel derogation, we backed it. I suspect that some of his colleagues were less forthcoming in backing proposals that we had made, although there were some honourable exceptions who wanted to.

[Mr Reid]

Now that the Liberal Democrats are part of the Government, the hon. Gentleman should be pleased that the rural fuel derogation is going to happen. We tried for years and the Labour party knocked us back, but now that my right hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander) is the Chief Secretary to the Treasury, the rural fuel derogation for the islands is going to happen.

[Stewart Hosie]

I am delighted to hear that the rural fuel derogation is going to happen. I cannot wait to hear that from a Minister, because the reports that I read earlier tended to indicate a little confusion in the Government’s ranks. I hope that that happens soon, for the following reasons.

In the final bit that I want to quote from the Chief Secretary’s speech in 2006, he said:

“Median earnings in the highlands and islands are some 85 per cent. of the UK figure, so the inequitable situation”

that he had described

“hits an already poorer region very hard.”

He said that, before coming to the Chamber, he had conducted

“a random survey of pump prices for a litre of unleaded petrol. In Aviemore in my constituency…the…price is 99.9p per litre. In Dalwhinnie, a little further south, it is 102p per litre. In Thurso, in the constituency of my hon. Friend the Member for Caithness, Sutherland and Easter Ross (John Thurso), it is 102p per litre. In Lerwick, in the constituency of my hon. Friend the Member for Orkney and Shetland (Mr. Carmichael), it is 106.9p per litre. By comparison, at Asda in Leeds the price is 92.9p, while in Morrison’s in Camden in north London, it is 90.9p.”—[Official Report, 4 July 2006; Vol. 448, c. 739.]

In preparation for today, we were told by the AA that petrol cost £1.34 a litre in Portree and £1.42 a litre in Stornoway. With prices now more than 30p a litre more than four years ago, that means an increase of more than £1.30 a gallon—many hon. Members will remember when that was what a gallon of petrol itself cost. If the argument was correct then, when the price was between 90p and £1 a litre, it is even stronger today, when the price is £1.30 a gallon more.

[Mr MacNeil]

Does my hon. Friend remember just how full the Chamber used to be of Liberal Democrat Members when the prices were 30p a litre cheaper? Now, following the massive increase in prices and the real rural pain being felt as a result, where are they? I see two Liberal Democrats here today. Any more? Please stick your hands up! No, just two Liberal Democrats. Shocking!

[Stewart Hosie]

My hon. Friend makes his point in his own inimitable way. I have to say that I cannot remember a time when the House was ever full of Liberal Democrats, but I think I know what he means.

I want to raise three specific issues in relation to the vital importance of the rural fuel derogation. In urban, built-up areas, 95% of people live within 13 minutes of a bus stop with a service more than once an hour. That compares with less than half of residents in villages and hamlets. Before any Member gets up to make a point about that, let me say that I know that there are parts of every constituency in which there are no bus stops, no bus services and no choice but to use a car.

[Mr Weir]

I am following with interest what my hon. Friend is saying. Did he read the report in The Guardian this morning which suggested that many English local authorities were slashing their subsidies on bus routes, which will lead to the closure of those routes in many rural areas? Does he agree that that would make the situation very much worse in rural areas of England as well?

[Stewart Hosie]

I have not seen that report, but those developments will clearly make things difficult in areas that depend on those subsidies. I hope, in the light of the price of fuel, that local authorities and the Government will try to ensure that as many bus services as possible, particularly lifeline services, are maintained. The key point about living in remote and rural areas is that there are fewer alternatives available, and in some cases, no alternatives at all. The use of a car in those areas is vital.

[Hywel Williams]

The lowest wages in Wales are in Powys, in the middle of Wales. Powys also has the highest incidence of car ownership, with many families having to run two cars because of the lack of public transport.

[Stewart Hosie]

My hon. Friend touches on an important point. It has been mentioned already that car ownership is normally a sign of wealth and affluence, but in remote, rural and sparsely populated areas, people on almost every level of income, including those on low and modest wages, require a car. That results in their spending a disproportionate amount of their net disposable income on fuel.

[John Thurso (Caithness, Sutherland and Easter Ross) (LD)]

A further point that the hon. Gentleman will recall from the many debates that we have had on this subject is that people in my constituency and elsewhere who earn below the average wage often cannot afford to buy good, modern cars. Their cars are therefore much more costly to run. That is part of the triple whammy that I remember talking about six or seven years ago.

[Stewart Hosie]

There are whammies after whammies, and the hon. Gentleman is right to say that the use of a car can be a necessity, and that people have to buy whatever they can afford. Also, if the roads are not quite as good as they ought to be in remote and rural areas, that can pose its own problems, especially in winter.

There are three key issues in this debate. The first is the lack of choice, which is very important. The second, which I hope urban Members will recognise, is the fact that the average mileage per year travelled simply to access essential services in rural areas is 8,794 miles. The comparator in urban areas is 5,200 miles. So the people in rural areas have no choice, and the distances that they have to travel are far greater. On top of that, the third factor is the price of fuel.

I am grateful to the BBC, which reported on 22 January that the RAC Foundation had found that some filling stations in Orkney were charging £1.50 a litre, which is £6.82 a gallon. An increase of only 4p or 5p per litre would result in the £7 gallon, which, because people have no choice, they would have to pay in order to travel the greater distances necessary in rural areas to access the services that most of us take for granted.

The time for talk and promises on fuel is over. There is now an absolute necessity for the Government—both bits of them—to deliver on their promises. We need to put the stabilisers on rocketing fuel prices now, before the brakes are slammed down on any chance of economic growth.

17:00

[The Economic Secretary to the Treasury (Justine Greening)]

I beg to move an amendment, to leave out from “House” to the end of the Question and add:

“notes the dramatic increase in the world oil price to over $100 per barrel; further notes that there has been a significant impact on fuel prices in the UK as a result; recognises the impact this has on households and business; notes that the previous administration’s rises in fuel duty that have taken effect during the past year have further increased prices; further notes that the Government inherited the largest deficit in UK peacetime history, that the previous administration had no credible plan to deal with the deficit, that the Government has been clear that everyone will make a contribution to tackle the deficit but that the most vulnerable will be protected, and that the Government is considering a fair fuel stabiliser that could support motorists and businesses when oil prices are high; further notes that the Government in addition is taking forward swiftly its commitment at EU level to introduce a pilot scheme that would deliver a discount of up to 5 pence per litre in duty in remote rural areas such as the Inner and Outer Hebrides, the Northern Isles and the Isles of Scilly; and further notes that the Chancellor will update the House on all fiscal matters at the time of the Budget.”

We have long recognised on this side of the House—both parties in the coalition Government—that the price of fuel has been a very difficult issue for motorists, businesses and families up and down the country. I know that it is a particular concern for people living in our rural communities, and no doubt many Scottish Members who hope to participate in the debate will make points on behalf of their constituents and echo the concerns set out by the hon. Member for Dundee East (Stewart Hosie). I am sure that other Members representing rural seats will also want to set out their concerns.

There is no doubt that rising oil prices and their impact as they feed through to the petrol pump have been a real concern. In fact, even before we came into office, both coalition parties had committed to looking at the issues surrounding the cost of the fuel, as the hon. Member for Dundee East has pointed out. Let us be clear, however, that the last Government chose completely to ignore this whole area. They believed that the challenges posed by these problems were too great. When we were talking about alternatives to help families, hauliers and motorists, they said that it was all too difficult and that the issues were way too complex.

Let me state at the outset that we would be interested to hear from the Opposition whether they stand by the fuel duty escalator—the one that they put in place before the election; it is a bit like reaching from the political grave into taxpayers’ pockets. Or do they believe that that policy was a mistake? Are we to be treated to the spectacle of Labour Members arguing not only against the Government’s measures across a whole range of areas, but against the measures they put in place before being booted out of office? We have taken a very different approach to fuel prices to that of the last Government.

[Mr Weir]

I am listening carefully to the hon. Lady and it is not my place to defend the Labour party, as we spent much of the last Parliament attacking the Labour Government and their fuel policy, which was disgraceful. It is interesting to see that so few Labour Members are here today. However, the Economic Secretary is now in government: what is she going to do and when is action going to come? The problem is getting worse by the day, and unless action is taken soon, it will be too late for many businesses in rural Scotland.

[Justine Greening]

I can assure the hon. Gentleman that I shall set out our approach to policy in this regard in the run-up to the Budget in my further comments, but we need to recognise that the fuel duty escalator was put in place by the last Government. They have, I believe, a blank piece of paper that is called their economic policy, and they owe the House the honesty of being transparent about whether they believe that putting that policy in place was the right or the wrong thing to do.

[Mr MacNeil]

Far be it for me to draw it to the hon. Lady’s attention, but since last May she has been in government. We want to know—in Lewis, in Harris, in North Uist, Benbecula, South Uist and Barra—what she is going to do about the price of fuel.

[Justine Greening]

The hon. Gentleman will be pleased, as I have looked at the Scottish National party website today and seen the letter he wrote to voters last April, in which he said that it was the SNP who first called for this “derogation” for fuel areas. I can assure him that I am getting on with that very policy.

[Mr MacNeil]

rose—

[Justine Greening]

Presumably, the hon. Gentleman wants to intervene again to welcome the efforts of the coalition Government.

[Mr MacNeil]

I will welcome those efforts when they bear some fruit. We had four years of shilly-shallying from Labour—and I do not want to hear any more shilly-shallying from any Government from the Treasury Dispatch Box.

[Justine Greening]

In that case, I can tell the hon. Gentleman how he can help. It would be helpful if his party wholeheartedly supported the Government’s proposal to the European Union and the European Commission as we go through the process of securing the derogation. I assure him that we will be more powerful if we adopt a cross-Government, cross-devolved-Administration approach.

[Stewart Hosie]

The Minister is asking the Scottish National party and our friends to support the Government’s efforts in Europe. Will she please tell us whether the Chief Secretary has finally managed to write to the European Commission asking for the derogation?

[Justine Greening]

The hon. Gentleman will be aware that the derogation will come about as the outcome of a process. He seems to be asking me whether we are getting on with that process, and how much progress we have made. I trust that if I explain what the process is, what we have done so far and what will happen next, he will have been given so much information that he will find it necessary to take a more considered approach.

Let me explain the timing involved in the process leading to European Union and Commission clearance. We must begin by undertaking informal talks with the Commission abut the implementation of the scheme. That will give us a better chance of presenting a proposal that it will agree is, as it were, right first time. As Members have pointed out, similar schemes exist in other countries. It is sensible for the Government to engage in a process that includes talking informally to the European Commission about those schemes, and about the ways in which our scheme may resemble or differ from them.

[Mr MacNeil]

Will the Minister tell us how long it has taken other Governments to proceed from the informal talks stage to implementation of a rural fuel derogation, and how long she thinks it will take this Government to do so? Time is of the essence.

[Justine Greening]

Obviously it will not be a short process involving a few weeks, but I think that the hon. Gentleman and his party know from their experience of the process involved in calling for the derogation that the route that we are taking can provide real support for motorists in rural areas.

[Robert Halfon]

rose—

[John Thurso]

rose—

[Justine Greening]

I will give way to my hon. Friend the Member for Caithness, Sutherland and Easter Ross (John Thurso), because he tried to intervene earlier.

[John Thurso]

I think I heard the Minister quote from a letter from members of the SNP saying that they had thought of the derogation first. In fact, it was first raised in the House of Commons in 2000 by my predecessor in the constituency, now Lord Maclennan. I fleshed it out in a debate that I held in Westminster Hall in 2001, and I think I have raised it every year since then. Given that the matter was raised over a period of 12 years, is it not commendable that this Government have done more in six months than the last Government did in those 12 years?

[Justine Greening]

I agree with my hon. Friend. I too remember his party, before it joined the coalition Government, making the case for a rural fuel rebate.

I now give way to my hon. Friend the Member for Harlow (Robert Halfon), who tried to intervene earlier.

[Robert Halfon]

I welcome the debate, because hard-pressed constituents of mine, especially small businesses and families, are suffering hugely as a result of high fuel costs. May I make a special plea? National health service workers in my constituency who have to use their cars to visit patients receive tiny fuel allowances—in some cases, only 12p per mile—which remain the same regardless of the price of fuel. Will my hon. Friend consider changing the guidelines so that NHS workers need not suffer in that way?

[Justine Greening]

I shall ensure that I respond to my hon. Friend on that issue. A variety of concerns about the cost of motoring have been expressed in constituencies throughout the country in recent years.

I hope I can reassure Opposition Members that we are getting on with the process of requesting a derogation by trying to arrange some pilot schemes. I am sure they will be pleased to learn that, although we are still considering the exact scope of the pilots, we have announced our intention of including the Inner and Outer Hebrides, the Northern Isles and the Isles of Scilly, should we be given the necessary dispensation. I assure Members that we are pressing ahead as fast as we can, and we should appreciate their support in helping us to complete the process. I hope that they will be able to overcome any political barriers, do the right thing and back up the coalition Government as we go through this process over the coming months.

We recognise the importance of fuel prices to motorists and businesses. While we are looking at options in the run-up to the Budget, which I will discuss this afternoon, we can have one of two debates today: we can continue to argue about the problem and waste the opportunity presented by today’s debate by scoring points, or we can have a frank and open debate about how to reach the best solution and how we can find common ground. For instance, do we agree that the price of fuel and the affordability of motoring are important for motorists? The answer is yes. Do we agree that the unpredictable way in which the oil price fluctuates can create difficulties for households and businesses when it comes to budgeting? The answer is yes, although the Labour party never recognised that point in government, and I doubt whether it recognises that point in opposition—if it does, perhaps the hon. Member for Bristol East (Kerry McCarthy) will explain why it has suddenly changed its mind after having been booted out by the electorate.

[Kerry McCarthy (Bristol East) (Lab)]

I am pleased that the Economic Secretary wants to have a constructive debate this afternoon and does not want to engage in party political point scoring. Given that conciliatory approach, will she confirm that a Conservative Government were the first to introduce the fuel duty escalator at 3% in the March 1993 Budget, which they increased to 5% in the November 1993 Budget?

[Justine Greening]

The hon. Lady wants to go back into history. The previous Labour Government left a huge fiscal deficit, and we have to get to grips with those ginormous debts, so the position is entirely different. The previous Labour Government left not only debts and deficit, but tax rises that will unfold over the coming years. In opposition, the Lib Dems and the Conservatives discussed helping motorists, and we still want to see what we can do to help them. Given the state of the public finances when they were handed over to us, the Labour party in opposition should be thoroughly ashamed. We have waited in vain for an apology to the British people for the state of the public finances, and I suspect that we will have a long wait before we hear any of them say, “Sorry.”

The most depressing thing is that the main adviser to the former Chancellor and former Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), is now shadow Chancellor. It is like returning the car keys to the man who crashed the car in the first place, which is the worst thing for the British electorate.

[Mr Stewart Jackson (Peterborough) (Con)]

The issue is not about going back into pre-history to discuss what a previous Conservative Government did 18 years ago. Her Majesty’s Opposition are not willing to make it clear where exactly the 20% public expenditure cuts would come from to pay for their opposition to tax rises. Is that not the real issue? We are paying £120 million a day in debt interest because of their debt legacy.

[Justine Greening]

My hon. Friend is right. We do not even know whether the Opposition think that going ahead with the fuel duty rise, which they planned, is a good idea. We know that they rejected calls from Opposition parties to look at alternatives when they were in power. Perhaps the hon. Member for Bristol East will explain her party’s position today.

My hon. Friend is also right to point out the difficult challenges that the current Government face. He has rightly pointed out that the level of deficit and debt that we have been left as a country costs the British taxpayer £120 million every single day. To put that in the context of a 1p a litre rise in fuel duty, which is worth £500 million, the British taxpayer will pay as much in debt interest over the course of four or five days as they will pay in fuel duty, if fuel duty is subject to a 1p a litre rise. That demonstrates two things, the first of which is the importance of tackling the deficit. Clearly, this country cannot continue to pay this expense of £120 million a day and it has to be tackled, because we are spending more on servicing our debt than on transport. The challenge for this country is that if we do not get this £500 million of real money from fuel duty, it has to come from somewhere else. The Government have made it clear that they want to try to protect key spending, for example, on the NHS—the Labour party did not want to do that—and schools.

[Dr Eilidh Whiteford (Banff and Buchan) (SNP)]

Does the hon. Lady agree that it would be unfair for the disproportionate burden of that tax to fall on people in rural and remote areas?

[Justine Greening]

As I have said, the Government recognise the particular pressures that motoring costs put on people living in rural areas, which is one of the reasons why we want to try to get a derogation and undertake pilot schemes in some of those areas to see whether we can implement a rural fuel rebate. I hope that the hon. Lady acknowledges that we recognise those challenges.

[Naomi Long (Belfast East) (Alliance)]

Does the Minister recognise that this is about not only the significant issue of rurality but remoteness from the marketplace? In Northern Ireland, it can be incredibly difficult, even in urban constituencies such as mine, for those who wish to trade to reach the marketplace; added costs can be involved, reaching from Northern Ireland on to the UK mainland.

[Justine Greening]

The hon. Lady is right in that few Members in this House would not have their own particular reasons for raising the issue of the cost of motoring with government. This issue is clearly a real challenge, which is why the Conservative party acknowledged it in opposition and said that we wanted to examine how we could tackle some of the key issues.

The hon. Lady also referred to the impact of fuel duty on businesses. That is one of the reasons why our emergency Budget introduced a package of corporation tax reductions for companies, as she will recall. Small companies will now face a corporation tax rate of 20% whereas they were facing a rise to 22% under the previous Government. We also introduced reductions in national insurance, getting rid of the worst effects of the proposed jobs tax. We can support businesses in a number of ways to help them through a very challenging economic situation created by the previous Government.

[Mr Weir]

I reiterate a point that I made in last week’s debate about the Department for Business, Innovation and Skills: the Government keep saying that they have reduced corporation tax and although that is welcome for small companies, very many small businesses in our areas do not pay corporation tax. They are single traders or partnerships that pay income tax, so they are not being helped by these measures and being hammered by the VAT rises and the fuel cost rises.

[Justine Greening]

The hon. Gentleman will know that alongside those measures to support companies, particularly small ones, I could have mentioned the regional growth fund and the regional reduction in national insurance for new start-up companies creating new jobs. He will also be aware of the rise in the personal allowance, which has removed about 880,000 people from paying income tax altogether. We have also raised the threshold for national insurance, which means that employers no longer have to pay employer national insurance for thousands of employees. Across the board we are doing what we can, despite the challenging financial deficit left to us. We are doing what we can to make sure that we tackle the overriding priority of sorting out the deficit—that is what we have to do. For motorists, companies, families and unemployed people wanting to get back into the employment market and get a job, we have to get the economy back on its feet and public finances back on a sustainable footing. At the same time, we understand the pressures and challenges for motorists.

As things stand, there are alternatives for the devolved Administrations. I have to challenge hon. Members representing the Scottish National party in Scottish constituencies on whether they have considered using some of the devolved Administration budget to fund their own grant scheme to support motorists in their areas. They have taken different decisions on tuition fees to those taken in England and there is now additional scope for them to see this issue as a priority for their spending, as well as for the national Government to consider how we might be able to help in terms of tax policy.

[Mr MacNeil]

I want to ensure that the hon. Lady is aware of the importance of what the devolved Scottish Government—in what is an independent Parliament without the powers of independence—have done for the Outer Hebrides. We have introduced road equivalent tariff pilots, which have substantially reduced transportation costs, but the difficulty is that when the Scottish Government produce schemes that stimulate and grow the economy, the tax revenue goes not to our Government but down to Westminster. We are doing good work, but there is a double whammy: as we stimulate the economy, Westminster benefits, and then it comes and sticks on a fuel tax—thank you!

[Justine Greening]

I think the hon. Gentleman is taking the debate slightly wider than the wording in the motion. However, I will say to him that the measures we are taking are designed to get our economies in his part of the United Kingdom and the rest of it back on their feet. I hope that he welcomes the tax reductions we are bringing forward.

[Stewart Hosie]

Will the hon. Lady give way?

[Justine Greening]

I will give way one last time, and then I shall make a little progress. I have been generous in taking interventions.

[Stewart Hosie]

The hon. Lady has been very generous indeed. She asks us to welcome the actions that the Government have taken in terms of a deficit consolidation plan. I like and respect her, but I will never welcome a £1.3 billion cut to the Scottish budget this year and a £3.2 billion cut to the Scottish block over the next four years. That is the wrong thing to do in terms of stimulating economic growth and growing our way out of the recession. If we could focus on the fuel duty, that would be particularly helpful, unless of course she wants to devolve the duty to Scotland, in which case I would be absolutely delighted as we could take all the right decisions.

[Justine Greening]

I am sure that the hon. Gentleman will be aware of the Goodison review and that the Scotland Bill is passing through Parliament right now. We are making some changes on tax, and I think he will welcome those measures to strengthen the devolution settlement.[Official Report, 15 February 2011, Vol. 523, c. 3MC.]

I shall now, as I am sure the hon. Gentleman would like me to, address my comments to the measures we have been talking about and what we are considering. Only this Government have been looking at how best to help drivers, including those in Scotland and Wales. We have demonstrated our concerns about these issues both before and since coming into government. Indeed, one of the first things that the coalition Government did was to get the Office for Budget Responsibility to look at how oil prices affect the economy and feed into public finance.

This is a complex issue, and we have to make sure that whatever we do is not only fair but affordable. It would not be right of me to pre-empt the Chancellor or the Budget, but, as we promised in the June Budget, we are considering a range of options. We have already discussed the rural fuel duty rebate. The Government understand the challenges faced by people in rural areas in relation to fuel costs, which those of us in city and urban areas perhaps do not face. I know that those people cannot easily shop around nearby petrol stations to get the best deal in the way that other people can. I understand the arguments about the lack of public transport as an alternative and that the car is often the most realistic mode of transport. That is precisely way we are working towards getting a derogation so that we can get on with putting in place pilots to look at how a rural fuel rebate would work.

[Dr Whiteford]

Is it intended that at a future date the derogation pilots should extend to other rural and remote parts of Scotland not included in the current pilot scheme?

[Justine Greening]

We have yet to decide the exact scope of the pilots. I assume from her question that the hon. Lady would like her area to be included. No doubt she will write to me formally. I will take her comments on board. As I said, we are already working towards putting in place the pilots for a rural fuel duty rebate which will reduce the cost of fuel in the most remote areas of Britain. As with trying to tackle the feed-through of unpredictable oil prices to the pump prices, the previous Government rejected that outright, but the coalition Government are committed to getting it under way.

As my right hon. Friend the Chief Secretary announced in October, we wish to conduct a rural fuel duty pilot and look at how a rural fuel duty rebate could work in practice. We want to examine the underlying issues and see how that could be applied. The initial pilot could deliver a duty discount of up to 5p per litre on all petrol and diesel. That would save some drivers in rural areas upwards of £500 a year.

[Simon Hart (Carmarthen West and South Pembrokeshire) (Con)]

As part of the derogation, will my hon. Friend please make sure that the definition of “rural” is a great deal more scientific than it has been in previous attempts? Will she also make sure that the interests of Wales are not left out?

[Justine Greening]

My hon. Friend makes a relevant point. One of the reasons that our initial discussions with the European Commission are so important is that they are an opportunity to scope properly any rural fuel duty rebate, why we would introduce it, where it would apply and the basis on which it would take place. In other countries, specific arguments have been made for the particular areas where such rebates were allowed by the European Commission. The benefit of going through the process, as we are doing, is that it maximises the chance that any proposal that we make will be given the go-ahead.

[Mr Stewart Jackson]

I thank the Minister, who is being very generous. The House will forgive me if I do not join in the excitement of our Scottish colleagues at the largesse of my English taxpayers footing the bill for their constituents. Will my hon. Friend take representations from areas such as mine, which is a travel-to-work area and essentially urban, but where there are pockets of social deprivation and low wages, such as the fens? In future, will she and her colleagues perhaps consider that such areas also require some support and assistance from the Treasury with significant increases in fuel duty, which have an impact on working life there too?

[Justine Greening]

My hon. Friend, as ever, represents his constituents powerfully. The point I would make to him and to the House is that we have inherited a huge fiscal deficit and eye-watering levels of debt, and we have to get the public finances back on to a sustainable footing. We must make sure that the economy is back on a sustainable footing too, creating long-term jobs, and that the economy is balanced so that it is less exposed to the peaks and troughs of economic winds than it was, perhaps, over the past decade.

That is the best way to help people across our country so that they are less reliant on Government giving them this, that and the other, and so that they can be reliant on themselves and choose where they spend their money and what they spend it on, instead of being reliant on somebody from Whitehall telling them.

[Mr Elfyn Llwyd (Dwyfor Meirionnydd) (PC)]

Does the Minister recall that when the fuel duty escalator first came in, it was meant to be a green tax? The environment was meant to benefit from the imposition of that year-on-year tax. As far as I know, it has not benefited the environment. It has just been a nice little earner, and now it is terribly heavy on rural dwellers and in the urban context as well. I, for one, appreciate the fact that Government are looking at the issue, and I hope they come up with a fair solution.

[Justine Greening]

There is undoubtedly an environmental aspect to how fuel duty changes over time, because people do change their driving behaviour. The hon. Gentleman’s point is that clearly we are all concerned about the affordability of motoring, which has been an issue in the past few years, and particularly today. In the long term, of course, the best move is to help people not to have cars that are so dependent on petrol and diesel and therefore prey to the fluctuations in the oil price market in the first place, but that is a debate for another day. That ties in to his earlier points about the environment.

Let me wrap up my remarks, because hon. Members wish to speak and I do not want to take up any more time. We are considering the exact scope of the rural fuel rebate scheme, and Members from Scotland will welcome the fact that the Inner and Outer Hebrides, the Northern Isles and the Isles of Scilly will certainly be included. It is not quite as simple as people suggest; there is complexity, so we are taking some time to work through it.

[Katy Clark (North Ayrshire and Arran) (Lab)]

The Minister has taken a number of interventions, which we are grateful for. I have written to her about part of my constituency, the Isle of Arran, where fuel prices are often the highest in Scotland. There has been a great deal of debate about what criteria will be used to choose the pilots being considered. Arran already does badly as a result of the equivalent scheme brought in by the SNP Administration in Holyrood, so will she look at Arran when considering these issues and perhaps expand on the criteria that will be used, either today or at a future opportunity?

[Justine Greening]

I can only reiterate what I have just said, which is that we are considering the exact scope of the scheme, but it is helpful to hear some of the issues that Members have in their constituencies. We are pressing ahead and will need European approval.

[Kerry McCarthy]

Will the Minister give way?

[Justine Greening]

I will give way one last time.

[Kerry McCarthy]

The Minister is being very generous. I am slightly confused, because my understanding was that it was Conservative party policy to look at the fuel duty stabiliser and Liberal Democrat policy to look at the rebate and the rural derogation. She has spoken for more than half an hour and focused almost totally on the rural derogation, so will she, before concluding her remarks, tell us the current position on the fuel duty stabiliser?

[Justine Greening]

I think that I have been very clear on that. In opposition and in government, we have always recognised the impact on motorists of the unstable oil price, which feeds through to pump prices. In setting up a stabiliser, we need to ensure that it works as intended, so the first step was to ask the Office for Budget Responsibility to look at how oil prices feed into the economy and affect public finances. We have commissioned that work, as the hon. Lady will know, and now need to take on board its outcomes before looking at how it feeds into policy making. It would not be right to pre-empt the Budget. Indeed, when the hon. Member for Dundee East was asked for further details, he said that he needed some time, which indicates that this is a complex policy area—too complicated for the Labour party when it was in government.

In conclusion, we want to treat motorists fairly, but we must also act responsibly by ensuring that we tackle our record national debt and the financial deficit, which will not be easy. I will not hide from the House the fact that that is a difficult balance to strike, so difficult that the previous Government chose to ignore it completely. That is also the approach they have adopted for tackling the deficit, offering no credible alternatives to our policies and, in the case of fuel duty, no viable alternatives to their own policies, because it is their fuel duty escalator that is causing the problems.

Once again, it has been left to the coalition Government to clear up the mess left by the Labour Government and look at how we can reach a fair resolution on fuel duty, get our economy back on its feet and support our businesses, families and, in this case, motorists. I look forward to the rest of the debate and hope that we can have an open and honest discussion on the problems faced by motorists across the country and possible solutions. I look forward to hearing from Members in the run-up to this year’s Budget what they think is the best way forward.

16:19

[Kerry McCarthy (Bristol East) (Lab)]

I congratulate the hon. Member for Dundee East (Stewart Hosie) on making a powerful case on behalf of his constituents—along with the interventions from his colleagues—about the impact that people living in remote rural areas can feel as fuel prices go up. He did make a very powerful case on behalf of his constituents, and Labour Members do understand the impact that motorists are feeling as fuel prices go up. I might represent an urban seat, but as a Member of Parliament in the south-west I am very much aware of the issues that are faced.

[Stewart Hosie]

I thank the hon. Lady for saying that I made a powerful case, but Dundee East is very much an urban seat. It has a rural hinterland of course, but my constituency is half the city. I know where Bristol is; a wee bit of geography would be great.

[Kerry McCarthy]

The hon. Gentleman makes a valid point. He was speaking on behalf of his colleagues in the more remote parts of Scotland, obviously, rather than on behalf of his own constituents. I thought that perhaps his constituency stretched a little further than the city boundaries.

For Governments, when considering fuel duties there is always a difficult balance to be struck among the needs to raise revenue and balance the public finances; to address environmental concerns about increasing road traffic and emissions, to which there has not been much reference in this debate; and to ensure that the motorist and especially people who have to rely on their cars—people who do not have a choice because of where they live and the environment in which they live—are not disproportionately penalised. The previous Labour Government endeavoured to strike that balance, despite the points that the Economic Secretary to the Treasury made. That was why, for example, in years when fuel prices rose, Labour chose to put the fuel duty escalator on hold—to help motorists meet those rising costs. It is a tricky balance to strike, however, as today’s debate demonstrates, and there are no easy answers.

[Justine Greening]

To clarify matters, is the formal Labour party position that the fuel duty rise should now go on hold?

[Kerry McCarthy]

If I can adopt the mantra that the hon. Member for Dundee East first used and the Minister then picked up on, I should say that that is a matter for us to discuss when we get round to the Budget negotiations. Today, we are here to discuss the two main proposals to ameliorate the impact of rising fuel prices, particularly on rural areas. We are talking about rural areas, rather than about fuel duty prices across the board.

The dog that has not barked during this debate—the thing that was most noticeably missing from the Minister’s speech—is the fact that motorists are being hit hard by the increase in VAT to 20%, which has helped push petrol prices up to their current record levels.

[Stewart Hosie]

It suddenly strikes me that, when the Labour Government had their fiscal stimulus policy, they cut VAT by 2.5 percentage points and increased fuel duty by 2.5 percentage points to compensate, but that, when VAT went back to 17.5%, the fuel duty rise was maintained. Does Labour now regret not reducing fuel duty in line with the increase in VAT?

[Kerry McCarthy]

Those matters were also affected by fuel prices at the time, but it is not my position to apologise for, or to express an opinion on, what my predecessors did.

The VAT rise now is the important thing. VAT went up at the beginning of the year from 17.5% to 20%. According to the Library, the VAT rise increases the cost of a litre of petrol by about 2.6p, assuming that it is passed on in full. That compares with the fuel duty increase in January of 0.76p per litre, so the VAT rise to 20% is hitting the motorist harder and people in rural areas, who rely on their cars most and have to travel longer distances, particularly hard.

[Mr MacNeil]

Is there any tinge of regret among Labour Members that for at least four years the previous Government did absolutely nothing on a rural fuel derogation?

[Kerry McCarthy]

I will deal later in my speech, if I may, with the rural fuel derogation and the problems that we see in implementing it.

The VAT rise did not have to be imposed. It flew in the face of all the warm words that Conservative politicians uttered before the election about ending the war on motorists, helping hard-hit families and keeping fuel costs down, but now it has been done and motorists are paying the price.

Let me turn to the fuel duty stabiliser, or regulator, which the Minister glossed over very quickly.

[Mr MacNeil]

If we are talking about glossing over, I feel that the hon. Lady glossed over my question. Will she take this opportunity to apologise for her Government doing nothing for four years on the rural fuel derogation?

[Kerry McCarthy]

As I said, I am coming on to the derogation, but it is not my place to express such opinions.

In principle, on paper, the fuel duty stabiliser sounds like a fairly simple, reasonable proposition—as oil prices go up, fuel duty goes down, and as oil prices drop, fuel duty goes up, so the motorist pays more or less the same for fuel and the Exchequer gets more or less the same in revenue. However, economics are not that simple.

The idea of the regulator has been floated for some time. During the debate on the 2008 Finance Bill, the Scottish National party spokesman, the hon. Member for Dundee East, suggested that a statutory instrument should implement an automatic mechanism so that as additional income from VAT receipts came in, it could be used to offset fuel duty in direct proportion. However, the regulator was based on rises in oil prices, not on rises in VAT receipts. It was assumed that one would flow from other—the hon. Gentleman reiterated that assumption today—but that is not necessarily the case, as the Office for Budget Responsibility has said.

[Stewart Hosie]

Will the hon. Lady give way?

[Kerry McCarthy]

I would like to make some progress.

There are other concerns about the stabiliser. The then Liberal Democrat spokesman, who is now Secretary of State for Business, Innovation and Skills, said at the time of the 2008 Finance Bill debates that the idea of a fuel duty regulator was “unbelievably complicated and unpredictable”. He said that the Exchequer would have to predict the net windfall, and then:

“May I suggest that there might not be any net windfall at all?”—[Official Report, 16 July 2008; Vol. 479, c. 339.]

The OBR has now confirmed that.

Labour’s then Chief Secretary to the Treasury said:

“In the face of a world slowdown, to take any one tax in isolation and claim that there is a windfall available to spend is economically illiterate, irresponsible or just disingenuous.”—[Official Report, 16 July 2008; Vol. 479, c. 331.]

She was basically saying—this was echoed by the hon. Member for Taunton Deane (Mr Browne), who was the junior Liberal Democrat spokesman at the time—that we cannot consider these revenues in a silo. Yes, oil revenues might go up, which might provide a boost to the nation’s finances—although I stress the word “might”, because it does not necessarily follow that increased revenues come from increased oil prices—but other things might happen that affect revenue flows, and it is irresponsible not to look at everything in the round. Hypothecation can box us into a corner and hamper our choices, and that is a real problem in the case of the stabiliser.

[Justine Greening]

Was the Chief Secretary who referred to economic illiteracy the same Chief Secretary who left us, as an incoming Government, a note saying that there was no money left?

[Kerry McCarthy]

No, I was referring to my right hon. Friend the Member for Normanton, Pontefract and Castleford (Yvette Cooper). The Minister may have got the hint when I said “She”.

If a stabiliser were introduced, there is the question of whether the cut in duty would be passed on to the consumer at the pump. That would be very difficult to achieve without further Government enforcement and interference. I am not sure how that would square with the Government’s purported dearly held belief in the free market and dislike for state interference in the operation of the free market.

[Mr Reid]

Yes, that issue must be considered, but the whole point of a pilot scheme is to enable us to work out whether the cuts are being passed on, which the Government would monitor. The hon. Lady’s argument is no case for not having a pilot scheme.

[Kerry McCarthy]

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

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

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

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

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

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

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

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

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

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

[Stewart Hosie]

The hon. Lady seems to be labouring under a misapprehension. The fuel duty regulator would temper spikes. If there is a structural change in the oil price, the baseline figure against which a trigger is measured has to be reset. We have all seen the OBR figures, but the OBR does not say that we should not have a short-term stabiliser to stop spikes; it says that there is no benefit in the long run, as she said. The regulator is designed to smooth out short-term spikes, not to stop structural changes in the oil price.

[Kerry McCarthy]

What I am saying is that a correlation between oil price movements and revenue has not been established by the OBR. In fact, it has said that that is not the case and that in the short term a temporary rise in the oil price would have a negligible impact on revenue. Therefore, the question is what money would be used to offset the stabiliser or regulatory mechanism that the hon. Gentleman’s party wants. If it does not come from the revenue, where does it come from?

[Stewart Hosie]

I remind the hon. Lady that the OBR’s press notice was clear that the temporary £10 rise would deliver an overall effect in year 1 of £100 million. That is not insignificant.

[Kerry McCarthy]

The new head of the OBR, Robert Chote, said in an interview about a week ago that its analysis

“suggested that a fair fuel stabiliser would be likely to make the public finances less stable rather than more stable”.

If a £10 increase in oil prices was passed through, the assumption is that it would add 7.4p per litre at the pump. To offset that would cost £3.7 billion, which is £1.3 billion more than the consequential rise in oil and gas revenues. It might have been a good idea for the Conservative party to carry out that sort of analysis before making promises that it could not keep. All the Economic Secretary has to say today is that the Government will consider the OBR’s report.

I also ask the Economic Secretary what conversations she has had with people in the industry about the impact of fuel prices. I have been contacted by the Retail Motor Industry Federation, which tells me that it has written to the Chancellor and Prime Minister four times about the matter recently, with no response at all. It has stated that the Government have

“made no attempt to engage with industry”

and that it wants the policy of a stabiliser to be dropped, because it would be

“costly and a huge administrative burden”.—[Interruption.]

Sorry, is the Economic Secretary saying that the RMI has not written to the Chancellor or the Prime Minister?

[Justine Greening]

The hon. Lady says that there has been no engagement, which is completely wrong. Only about three weeks ago, we held a workshop on tax policy in relation to travelling and the environment, at which a range of stakeholders from a variety of sectors of the travelling industry came to the Treasury to talk about their challenges. Many said that it was the first time they had been invited in for any kind of constructive discussion.

[Kerry McCarthy]

The Economic Secretary says that as though I were the one saying that there had been no engagement. I am not, it is the RMI that states that the Government have

“made no attempt to engage with industry”.

Perhaps she could place in the Library a copy of the response from either the Chancellor or the Prime Minister to the letter that the RMI says it has sent four times, and copy me in. That would confirm whether there has been an attempt to have a dialogue.

I turn to the other proposal under active consideration, the rural derogation. As we have heard, the Government are planning to pilot it in the inner and outer Hebrides, the Northern Isles and the Isles of Scilly, although from what the Economic Secretary said I am not sure whether those are the definite areas for the pilot or whether the matter is still under consideration. My understanding is that there would be a maximum 5p per litre discount on petrol and diesel sold in those areas.

Will the Economic Secretary elaborate on just how far the informal conversations with the European Union have gone? Have they been about just the pilot scheme, or have there been discussions about introducing the scheme to a significant proportion of the British isles at some time in the future?

Following on from the question that my hon. Friend the Member for North Ayrshire and Arran (Katy Clark) asked, will the Economic Secretary explain on what basis the islands in question were chosen for the pilot as opposed to other remote rural areas? Does she not think that it will be difficult to extrapolate from pilots carried out in island areas how such a scheme would work in remote mainland areas, particularly those from which it is not so far to travel to urban areas where petrol is in greater supply? Will she explain why the pilot scheme is to be so limited, rather than a larger pilot that could have more evidential benefit and be used to show how the scheme would work across the country?

We have a number of other concerns about the rural derogation. There is a long-standing principle that excise duties are charged on a universal basis, and it would set quite a precedent to depart from that practice. As has been said, the scheme would be difficult and expensive to administer, because at the moment duty is levied when oil leaves the refinery, not at the point of retail sale. That takes us back to the point that the hon. Member for Argyll and Bute (Mr Reid) made when I was talking about the stabiliser. How would the system be policed if there were to be differential duty at the point of sale? It sounds like a complex administrative system would be required.

[Justine Greening]

I am trying to follow the hon. Lady’s argument, but it is not clear to me. Will she confirm whether she supports the Government’s attempt to get a derogation in place by introducing pilots?

[Kerry McCarthy]

It is up to the Economic Secretary to answer the questions. We are certainly interested in the conversations that she is having with the EU, but we have major concerns about whether it is practical to take the proposal forward. We would like more information to be convinced that it will solve the problem.

The rural rebate proposal was, of course, a Liberal Democrat manifesto commitment, and it seems that the Government are now taking it up. The hon. Member for Caithness, Sutherland and Easter Ross (John Thurso) referred to the fact that he has raised the matter on many occasions over the past 12 years, and when he was his party’s transport spokesman he proposed a duty differential based on the Scottish Government’s method of having eight categories to distinguish between urban, rural and remote areas. Again, that could become quite complex. It would be quite easy to calculate rebates in the case of geographically isolated, sparsely populated areas, but in southern Scotland, where there is more of a patchwork of those categories, it could be difficult.

[Dr Whiteford]

For clarity, will the hon. Lady tell us whether her party is saying no to a derogation and no to a stabiliser?

[Kerry McCarthy]

Again, it is for the Economic Secretary to tell us what her policy is on the stabiliser and so on. We are quite happy to discuss and consider proposals for tackling the problem of increased fuel prices in rural areas. However, when the OBR is telling us that the fuel duty stabiliser would cost the public purse huge amounts of money and be difficult to administer, and when real and valid concerns are being raised about whether rural derogation pilot could be transposed over to mainland Britain, we are right to ask questions and require answers before we decide whether we can support the proposal.

[Dr Whiteford]

rose—

[John Thurso]

rose—

[Kerry McCarthy]

I want to conclude now. I have taken quite a lot of interventions, and hon. Members will have the opportunity to pose as many questions as they like in their own speeches.

Finally, I ask the Economic Secretary to confirm several things. Has the Conservative party dropped the fuel duty stabiliser policy in the light of the OBR’s fairly clear and damning verdict on its practicability? Is the policy now restricted to the rural derogation, and what time scale does she think would be appropriate for its introduction? It will take some time to get it through the EU, and considerably longer to roll it out to the UK as a whole. In the meantime, is she actively considering the impact of the VAT increase on fuel prices? That is hitting people now, and not an issue for the future.

[Several hon. Members]

rose—

[Mr Deputy Speaker (Mr Nigel Evans)]

Order. This has proved to be a popular debate, and nine Members have indicated that they wish to participate in the short space of time that we have left. To be as fair as we possibly can, and to try to get everybody in, we are going to introduce a seven-minute time limit, with the usual injury time for two interventions.

17:57

[David Morris (Morecambe and Lunesdale) (Con)]

I will keep it short, Mr Deputy Speaker.

We all know why we are having this debate today—the extortionate increases in fuel duty brought in mainly by the last Government, which were made worse by three increases introduced in the last Labour Budget that the new Government have to implement or find revenue from elsewhere.

My argument has always been that our top priority must be to cut the deficit, which my right hon. Friend the Chancellor is doing. We have a national and moral duty to do so. After that, we need to start considering ways to cut the burden of tax and get our country moving again—excuse the pun. When that process begins, fuel duty should be our top priority.

On Friday I was called by a haulier in my constituency, Mick Gorry, who claims that despite turning over £4.5 million from his 41 trucks in Morecambe, he made just £19,000 profit in the last financial year. To unpick that, we need to understand that of that £4.5 million turnover, £2.2 million was spent on fuel. As prices rise, it is easy to see how that small profit could disappear.

This is an Opposition day debate, but let us not delude ourselves: this problem was created by the last Labour Government, and we must work out how to clear it up. Mr Gorry is convinced that the solution to the essential user rebate is a fuel stabiliser. He makes the point, rightly in my view, that haulage costs are pushed up by prices in the shops, which in turn causes the risk of inflation, which we must avoid in an economic downturn. But let us not be unrealistic. As I said at the outset, our top priority is to cut the deficit. Thirteen years were spent telling everyone that we could pay for everything—we must never fall into that trap again. As a coalition supporter, I can look my constituents in the eye and tell them honestly that we do not have a bottomless pit of money, but that we can and will cut tax when the public finances are in a better position.

It benefits no one to have a bankrupt United Kingdom—everyone agrees about that. If we had continued down the old path, we would be in that position. My constituency looks to the House and the Government to show leadership on the matter. We showed ourselves at our best by being honest about the challenges and trying to find solutions. Without the reckless spending of the past, Mr Gorry would not be spending £2.2 million on fuel every year.

I support our Chancellor wholeheartedly. I support a proposed fuel stabiliser and any forthcoming rebates. I have yet to hear any detail from the Opposition about how they would try to get us out of the mess into which they got us.

18:00

[Paul Murphy (Torfaen) (Lab)]

I welcome the debate, and the hon. Member for Dundee East (Stewart Hosie) made a powerful speech. It is relevant that it arises on a Supply day motion from the Scottish National party and Plaid Cymru, because the issue is also of particular concern to Northern Ireland, and the hon. Member for Belfast East (Naomi Long) is in her place. All devolved Administrations have a voice to raise and a point to make about the fuel increases in their countries. Hon. Members will know that a joint ministerial Committee meeting took place last week in London, when the First Ministers of Wales, Scotland and Northern Ireland jointly asked the Government to ensure that there would be no increase in fuel prices in the Budget in April. I hope that that will be the case.

I share the concerns of my hon. Friend the Member for Bristol East (Kerry McCarthy) about some of the detail of the derogation for rural areas. I support the idea of a pilot, but it should include at least one part of Wales, and to confine it to islands would make such a study rather artificial. I appreciate that there are particular problems in rural parts of the United Kingdom and it is important to consider that, but confining the pilot to islands would be a mistake.

[Naomi Long]

Does the right hon. Gentleman agree that, if there were a pilot, it would be helpful if a part of Northern Ireland were included in it, given that there are specific problems due to the geographical separation between Northern Ireland and the rest of the United Kingdom?

[Paul Murphy]

Indeed. When I was Secretary of State for Northern Ireland, the point was always made to me that it is the only part of the United Kingdom that has a border with another country—the Republic of Ireland— and the problems of fuel prices in Northern Ireland are particularly acute. It would be a good idea to have a pilot there, too.

The Economic Secretary spent much of her time telling us that it was all the Labour Government’s fault, and then she said that she wanted to be conciliatory. If I may say so, she is slightly schizophrenic about what she wants. Let me emphasise to her that, for the 24 years that I have been in the House of Commons, whether in opposition or in government, the Treasury has always won its case. It has won it on the basis that it wanted the money from fuel—a Conservative Government as much as a Labour Government argued for fuel regulators. There is no point in trying to say that one side or the other is responsible because all Governments in the past three decades have done precisely that.

There is a difference now—and we will differ fundamentally about the reasons for it. Given that we are post banking crisis and have to deal with the deficit, of course the world has changed and we must therefore consider imaginatively ways in which to deal with the fuel prices that our businesses and our families have to pay. However, the Economic Secretary must recognise the point that my hon. Friend the Member for Bristol East made: the single, most devastating reason for fuel price rises in the past few months is the increase in VAT. It is as simple as that. Petrol and diesel are more expensive because VAT has gone up. As all Opposition parties have argued, we should rethink the VAT increase.

The effect of the fuel prices on small businesses in Wales is calamitous. The difference in Wales, as in Scotland, Northern Ireland and parts of England, is that so much of our economy is now based on the success of small and medium-sized businesses. If they are to suffer—it has been shown that they will if fuel prices increase—special attention should be paid to them. The Federation of Small Businesses in Wales has already said that it is disappointed with the Government’s treatment of fuel prices. The Economic Secretary is right to say that devolved Administrations have a part to play in that the Government and the devolved Administrations should work closely with small businesses to see how they can tackle the matter.

Small businesses also deal with other pressures. In south Wales, the Severn bridge is undoubtedly a problem for them. Someone who has a large vehicle such as a lorry and crosses from England to Wales has to pay £17 each time. That is a big disincentive to small businesses in Wales. Earlier, the Prime Minister rightly pointed out that he, like me and every hon. Member, wants banks in our countries to lend more regularly, more frequently and more effectively to small businesses.

The debate is important—so important that hon. Members from all parts of the United Kingdom are taking part in it to ensure that the Government’s mind is bent to trying to find a solution. I fear that the Economic Secretary was right when she said that the fuel stabiliser was a problem—doubtless the Government are looking at it—but there are serious issues, which could have a knock-on effect unless they are tackled effectively and carefully.

In the past couple of days, I went to my local Sainsbury’s petrol station to fill up. Like many supermarkets, it offers diesel and petrol at much cheaper rates than smaller, independent petrol stations. I paid just over £1.30 a litre for diesel. Compared with some of the prices, which we have heard today, in parts of rural Scotland and Wales, the price in my part of the world, although quite high, is lower.

It particularly struck me, when considering the reasons for taking part in the debate, that Shell was making £1.6 million an hour in profits. I know that that is not all on fuel. However it strikes me as incongruous that, when the citizens and businesses of our country have to face huge, inflationary rises because of increases in fuel duty, large oil companies are making those enormous profits. Perhaps the Government can consider that. They were supposed to look at how the banks share out their profits and pay their bonuses. They have not done well on that. Perhaps they should look at some oil companies, too.

Whatever the Government do, they should understand that there is real and justified concern from all Members about the fuel increases. I hope that they will listen.

18:07

[Mr Alan Reid (Argyll and Bute) (LD)]

Representing a sparsely populated rural constituency, I am only too aware of the severe impact of the high fuel price on motorists and local businesses. It is important to remember that, in remote areas, a car is an essential, not a luxury.

Let us consider the purpose of high fuel duty. Two arguments are often advanced: the green argument and the tax-raising argument. The green argument does not stack up in rural areas, because it is based on encouraging people out of their cars and on to public transport. That fails completely in the highland and islands of Scotland, where buses are few and far between. Indeed, there would be no point in rural councils in remote areas subsidising buses that run with only one or two passengers to try to reduce carbon emissions. Clearly, one or two people taking a car will cause far fewer carbon emissions than one or two people on a bus.

I represent many of the islands of the Inner Hebrides, and the price of fuel is far higher there than on the mainland. On the larger islands, such as Mull and Islay, the price of a litre of fuel is typically 15p higher than in a city. On the smaller islands, such as Coll and Colonsay, the price is often about 30p a litre higher. I was therefore delighted when the Government announced their intention to pursue a pilot scheme under which there would be a 5p fuel duty discount on many islands, including the Inner Hebrides. I realise that they must get EU permission to go ahead with that scheme, but since other EU countries operate a similar scheme for islands, I see no reason why permission will not be granted. It takes time to take such projects through the EU, and it is important that the Government get their proposals right, but I plead with them to take their proposals through as quickly as is humanly possible.

[Mr MacNeil]

When does the hon. Gentleman hope to see the rural fuel derogation in action on the Inner Hebrides?

[Mr Reid]

I hope that the scheme will be implemented as soon as possible, and that it can be extended to remote parts of the mainland once the pilot schemes are proven to be successful, as I am sure they will be.

Any argument that fuel duty must increase yet further in order to deter car use is complete nonsense. The high price of fuel already deters car use, and simply increasing the duty further will have no effect on the environment. As other hon. Members have said, increasing the duty will simply harm the rural economy.

I recognise that fuel duty brings in a lot of money for the Treasury, and that the Budget must be balanced. We face an enormous budget deficit, which was inherited from the previous Government, but I put it to the Chancellor that yet another fuel duty increase in the coming Budget will harm the economy, particularly in rural areas, and I urge him to find another way of raising that money. Fuel duty discriminates against rural areas in a way that no other tax does. Almost any other tax increase to replace an increase in fuel duty would therefore be an improvement.

We have debated the stabiliser previously, particularly during proceedings on the Finance Act 2009, when the hon. Member for Dundee East (Stewart Hosie) proposed one. The crucial decision is on the amount around which the price should be stabilised. The Minister of State, Foreign and Commonwealth Office, my hon. Friend the Member for Taunton Deane (Mr Browne), who was a Liberal Democrat Treasury spokesman at the time, pointed out that the proposal from the hon. Member for Dundee East would mean that the fuel duty would have been 4.5p higher if it had been introduced in the 2008 Budget. I am disappointed that in the intervening two years, the hon. Gentleman has not come forward with a detailed, workable proposal.

[Katy Clark]

I recall the debate and vote on that proposal. Parts of my constituency are similar to the hon. Gentleman’s constituency. Does he agree that the technical and practical problems of introducing a nationwide derogation would need to be looked at very seriously? When those on the Treasury Bench consider the detail, they might find that a nationwide scheme is impossible. Does he therefore agree that we need to consider introducing a scheme in specific communities in specific parts of the country, like the pilot scheme?

[Mr Reid]

Yes, I agree with the hon. Lady. I hope that a stabiliser formula for the whole country can be found and made to work, but I remain sceptical. It is important that the Government consider that idea, but it is also important that no idea is put into practice without careful consideration of all possible negative effects. Any rigid formula could have such unforeseen effects, such as the 4.5p increase that would have resulted in 2009. I am convinced that a rural fuel derogation could be made to work in a specific area. I have no argument whatever against a stabiliser pilot scheme, but I remain sceptical. It would be great if a stabiliser could be made to work—the Government ought to consider it—but we must be very careful. The way forward is definitely a rural fuel discount.

The Budget is only a few weeks away. It is important that the Chancellor exercises restraint and that he does not increase fuel duty in the Budget, when the fuel price is already so high. However, rather than having a rigid stabiliser formula, which could have unforeseen side effects, it is important that he acts sensibly.

Under the previous Labour Government’s policy in their last Budget—the fuel escalator—the tax on fuel would increase by more than 4p a litre in April. I hope that the Government do not follow Labour’s policy. That would be grim news for a rural economy that is already struggling under the burden of a high fuel price. I urge the Chancellor to heed the warnings he has received on the impact that another 4p per litre increase would have, and I plead with him to cancel the proposed fuel duty increase in the Budget.

18:15

[Dr Eilidh Whiteford (Banff and Buchan) (SNP)]

I have listened with great interest to this afternoon’s debate. I intend to limit my remarks to aspects of it that relate most to the area that I represent. That part of rural Aberdeenshire and Banffshire has no railway stations and very limited public transport options—there are far fewer bus services than hon. Members will find in urban areas. This is therefore an urgent issue not just for individuals, but for businesses in remote and rural areas, and I am glad that Members on both sides of the House take it seriously.

It almost goes without saying that people who live in the more remote and rural parts of Scotland, Wales and other parts of the UK have to travel further to access the most basic amenities, whether post offices, shops, schools, places of work or doctors’ surgeries. Inevitably, they incur extra costs in doing so, yet as other hon. Members have pointed out, people in rural and remote areas pay higher prices. In parts of my constituency, they pay £1.36 per litre for fuel. That might not be quite as high a price as is paid in some of the island communities, but it is nevertheless well above the average.

[Albert Owen (Ynys Môn) (Lab)]

The hon. Lady is quite right to point out that those in peripheral or rural areas pay more because their need for the car is greater. In addition, those people need larger cars, and there is a big difference between the costs of petrol and diesel—many diesel vehicle owners are hit harder. We are talking not about Chelsea tractors, but essential means of transport in rural areas.

[Dr Whiteford]

I agree with the hon. Gentleman. I live in rural Aberdeenshire, and at this time of year, I fully appreciate the need for vehicles that are suitable for the roads on which they travel and the driving conditions.

There is a huge irony in this situation for people in my constituency, who have had an oil terminal on their doorstep for many years. People who live at the heart of Europe’s oil and gas industry pay among the highest prices for petrol and diesel in Europe. That irony is certainly not wasted on folk in my part of the world. Nearly 62% of what we pay at the pumps goes directly in tax and duty to the Treasury. My concern—this is the chief point that I want to make this evening—is that that is a disproportionate tax on people who live and work in rural and remote areas.

[Jim McGovern (Dundee West) (Lab)]

May I say that I am sorry, Madam Deputy Speaker, that I was not here at the beginning of the debate? I was in Dundee for the launch of the Scottish Affairs Committee inquiry into the video games industry. The hon. Lady is a member of that Committee, so I am sure she will understand.

Does the hon. Lady agree that while figures suggest that fuel duty puts 1p on the price of a litre of petrol or fuel, VAT puts somewhere in the region of 3p a litre on it? Should we not attack the coalition Government for increasing VAT instead of looking for fuel duty regulators? I see that she is being advised by her colleagues on that.

[Dr Whiteford]

Had the hon. Gentleman been here earlier, he would have heard that point addressed in previous contributions. Both VAT and duty have a part to play. The previous Government’s record on this was shameful in not allowing motorists to benefit from the falls in VAT at the beginning of the recession. The key point is that the disproportionate tax on rural parts of these islands does not only harm individual motorists, but inhibits our business growth and the development of our rural economies.

[Katy Clark]

I support what the hon. Lady says about islands and remote communities, and I support a fuel duty discount for such areas. However, the bigger picture is how much we tax fuel in this country, and Britain has decided to have a high level of tax on petrol, diesel and other fuels. Does she support that?

[Dr Whiteford]

We have heard a lot this afternoon about the need for the Treasury to balance its books, and about the role of tax in that, but the fundamental underlying question is: why should people have to pay more and disproportionate tax just because they do not have access to public transport or happen to live in a rural area? I am all for tax, so long as it is fair, proportionately applied, and people are not discriminated against for living and working in a rural area.

The impact is felt particularly by businesses. As other Members have said, goods and services have to be moved into and out of parts of rural Scotland by road, and in many areas we already have to overcome significant challenges arising from our distance from markets. The area I represent has strong food processing, farming and fishing sectors and a great deal of manufacturing. Companies in northern Scotland have to cover the extra costs they incur and the extra taxes they pay, in order to make viable business plans, but nobody else has to. We have come through difficult times but are still struggling to emerge from the recession, and the fluctuating price of oil causes great instability and uncertainty for business. Big and small businesses alike struggle with that. Big businesses can sometimes buy fuel while in greater debt, but small businesses, which are often the greater engine of growth in our communities, really struggle with the unpredictability caused by fluctuating prices.

In conclusion, I urge the Government to honour their commitments before the election. I cannot over-emphasise the urgency and immediacy of this issue in rural Scotland. I urge them to consider the matter seriously. We have heard a lot about the derogation. I hope that not just island communities will be included in that, but that, notwithstanding the difficulties, other rural and remote parts will be included too. I also hope that much more attention will be given to the stabiliser, which, ultimately, will create fairness in the system and proportionality in the taxation on fuel.

18:23

[Stephen Phillips (Sleaford and North Hykeham) (Con)]

This has been an interesting debate for a number of reasons. However, I begin by apologising to the hon. Member for Dundee East (Stewart Hosie) for missing the opening part of his remarks in introducing the debate.

The issue of fuel costs touches not only those living in regions that the devolved Administrations are largely responsible for governing, but many rural constituencies across the country, and certainly my constituents and members of the public across Lincolnshire. The reason is that it costs—and has done for a long time—a great deal of money to run a car, given the current fuel prices. However, a car is not a luxury to my constituents and people living not only in Wales, Scotland and Northern Ireland but in rural parts of England. In those places, a car is a necessity. Owing to the state of public transport, people cannot live their lives without at least one car—certainly, they could not do so without great difficulty.

Much of my constituency is made up of rural areas dotted with small villages and farms, which means that I live in a beautiful part of the country. However, it also means that it takes a great deal of time to get to the doctor’s, the supermarket or anywhere else that one needs to get to in order to live one’s ordinary life. Public transport has got worse over the past few years, and will continue to get worse owing to the state of the deficit left by the previous Government and the need for this Government to deal with it. That will not be conducive to better public transport over the next few years, and will exacerbate the problems caused by high fuel prices.

I would like to echo a point made by the Economic Secretary. The Labour Government left us with the worst possible fiscal position. The simple fact is that we are paying debt interest of £120 million a day in circumstances where 1p on fuel raises only £500 million. It does not take a very good mathematician to work out that were we not paying that debt, we would not need the level of fuel duty or VAT that we do—with all that that has meant for the current fuel crisis. I heard no apology in the remarks of the hon. Member for Bristol East (Kerry McCarthy) or explanation of why we have been left with this debt legacy and of what it means, in the context of this debate, for my constituents and others all over rural Britain who are paying the price for the previous Government’s failure, inter alia, through the cost of fuel.

[Guy Opperman (Hexham) (Con)]

Does my hon. and learned Friend think that it was right for the leader of the Labour party to indicate that he would not have implemented the previous two fuel rises in the current circumstances?

[Stephen Phillips]

I have not seen the comments made by the right hon. Member for Doncaster North (Edward Miliband). However, he was at the heart of the previous Administration, with all that that meant for the legacy inherited by this Government. Whatever opportunism Labour Members pursued—we saw it last week during the forestry debate from a party that sold off 25,000 acres of forest without any guarantees of rights of public access—we understand that it is the duty of the Opposition to oppose. However, I do not understand many of his policies, and I do not expect that I understand this one any better than any of the others.

We have heard about two mechanisms that might serve to address some of the difficulties associated with current high fuel prices. The first is the derogation. The Government have done more to take that forward during the few short months they have been in office than the previous Government did during the entire time they were in office. I congratulate my hon. Friend the Member for Caithness, Sutherland and Easter Ross (John Thurso) and his predecessor who have done so much work on this matter. It is gratifying that we at last have a Government who are beginning to take this issue seriously and to negotiate on it in Europe. I hope that in due course we will see this derogation.

On behalf of my constituents, I would like to hear from the Exchequer Secretary that the pilot, whatever that might be, is rolled out not just in the remote rural areas referred to in the amendment—the Inner and Outer Hebrides, the Northern Isles and the Isles of Scilly—but in areas of England affected by high fuel prices.

[Heather Wheeler (South Derbyshire) (Con)]

Could my hon. and learned Friend expand on the rural areas in England suffering with high fuel prices? It would be helpful for the Exchequer Secretary. Certainly in South Derbyshire we are seeing prices as high as £1.36 a litre. We are suffering too, and if that could be borne in mind when he sums up, it would be superb.

[Stephen Phillips]

I am sure that my hon. Friend the Minister will take into account the views from Derbyshire. I do not want to take up too much time dealing with that, however, because there are a number of other people who want to contribute to the debate.

What I want to hear from the Government Front Bench is that the pilot will be rolled out not just in island communities in Scotland or elsewhere, but in England. There are areas, such as the constituency that I represent, where it costs people an enormous amount just to live their ordinary lives, which is effectively a piece of discrimination via the tax system. We deserve the piloting of such a break, in just the same way as those areas of the United Kingdom where the pilot will take place deserve it.

This is not the subject of today’s debate, but a lot of my postbag is taken up with correspondence from constituents expressing concern about the Barnett formula and the way it effectively sends a subsidy—they would say at their expense—to Wales, Scotland and Northern Ireland. That is one of the issues that this Government will have to grapple with, at the same time as explaining to my constituents why the derogation will mean that there may be lower prices in other parts of the United Kingdom.

I have not yet dealt with the other limb to what is proposed—it is something that I understand the Government are looking at, and they must consider it carefully—namely, the fuel duty stabiliser. The fuel duty stabiliser, which we talked about in the election, is designed to smooth out, as the hon. Member for Banff and Buchan (Dr Whiteford) said, the spikes in prices that harm our constituents so much. To those who have read it, it is clear that the Office for Budget Responsibility report indicated that, although difficult, introducing the fuel duty stabiliser would not make that much difference to the revenue going to the Exchequer.

I did not understand the position of the hon. Member for Bristol East on that issue, as on so many other things. I am sure that in due course there will be some intolerant tweets about what I am saying about her across the Chamber, as that is her general way of dealing with me. I did not understand her or her party’s position on the fuel duty stabiliser, because she was unable properly to tell the House what it was, and I certainly did not understand her party’s position on the derogation from Europe. If the Opposition are to oppose in a responsible way, as the Leader of the Opposition has said, it would help if the Government and Members in all parts of the House knew what the Opposition’s position was, because at the moment, on this issue as on so many others, we do not.

Let me say a word about the question before the House. The difficulty with the motion, as the Government’s proposed amendment recognises, is that it does not take into account the concerns of constituencies other than those in the devolved Administrations. The motion is focused, no doubt for perfectly good political and tactical reasons, on those constituencies, not ours. It is for that reason, among many others, that I will not be supporting it, although I will of course support the amendment that my hon. Friend the Economic Secretary moved.

18:33

[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

I shall try to be brief to allow my hon. Friend the Member for Angus (Mr Weir) to get in.

Simply put, fuel in my constituency costs a ridiculous amount, at £1.45 a litre. What we want, in essence, is to pay the same tax as elsewhere. We are only looking for fairness. A rural fuel derogation would not achieve fairness, but it would take us to the foothills of fairness and would be a big step in the right direction, reducing the price from £1.45 a litre to £1.40. I have sympathy with those in South Derbyshire; I only wish I was enjoying the prices that they are currently burdened with. We have to remember that, at the back of this debate, we want to look at fuel distribution throughout the country, which is often a difficulty to do with refineries—part of the excuse that some of the companies use as well.

Remoteness is often blamed, but I discovered recently that while we pay £1.44 a litre, those in the Faroe islands pay 94p a litre for diesel and £1.10 for petrol. For those who do not know, the Faroe islands are halfway between the Hebrides and Iceland, where petrol and diesel are £1.10 a litre. We do not need to go too far back to remember the difficult economic situation that Iceland faced. It has a big debt, although its deficit is not in the same situation as the UK’s, but it clearly understands that high fuel costs choke recovery. Iceland is not making that mistake; indeed, in the last quarter, Icelandic GDP grew far more than the UK’s. The Government here can talk of the deficit, but if they carry on like this, they will choke the recovery and will not see revenues flowing into their coffers, as they should and would like to.

The price is painful for us. As I left Benbecula this morning, the fuel concerns of Mr Alec MacIntosh, who works at Benbecula airport, were ringing in my ear, and small wonder, as he had just bought some fuel at £1.46 a litre. I think that his week’s wages had just about gone in filling up his vehicle. Those at Stornoway airport attacked my other eardrum on the issue. There is scarcely a place I can go without people seeing me as a telegraph to relay to the Treasury the pain that people are feeling. That pain is real, and I hope that that is taken on board. Indeed, it is not just pain; it is anger, because people know that more tax is flooding from my constituency to London than from just about any other constituency. We have the highest fuel poverty in the UK, and small wonder. The islands really need a rural fuel derogation, and they need it quickly. The hon. Member for North Ayrshire and Arran (Katy Clark) spoke earlier, and I have sympathy with those on Arran, too. Indeed, I saw the MSP for Arran, Kenny Gibson, on the television vociferously calling for a rural fuel derogation.

The high cost has an impact on a whole raft of other budgets. Local councils are haemorrhaging cash because they can run their vehicles only by paying higher fuel costs—again, the money goes directly to the Treasury—as are our health boards, and our police, fire, coastguard and ambulance services. They are all having to deal with budgetary cuts every time they fill up their vehicles, because of the cost of fuel. Businesses are losing too, and less money is circulating locally. Indeed, so vexed was one constituent of mine—Erica MacDonald—that she started a petition a few months ago and came to the Treasury. She is now wondering whether the EU’s rural development policy—€96 billion over a number of years—can be used. I do not think that it can, but such is the level of research being done by individual voters in rural and island Scotland, who are looking for solutions and hoping that the Treasury will listen to some of them.

Talking of solutions, we certainly listened to the Labour party earlier. We heard a repetition of what I would call the Pontius Pilate approach. The Labour party seemingly has no view on a rural fuel derogation or a fuel duty stabiliser, and no other plans or suggestions. Indeed, if those on the Labour Front Bench have a concrete plan or suggestion, I would ask them to tell us what it is. We definitely heard no apology for the years we spent in this place listening to the previous Government’s excuses for doing absolutely nothing, leaving places such as the Outer Hebrides with shockingly high fuel costs.

[Stewart Hosie]

My hon. Friend talks about the dearth of opinion on the Labour Front Bench. Might that be a consequence of the Labour leader saying recently that Labour found it difficult to implement a fuel duty regulator when in power, when in fact Labour voted against every single attempt to introduce one?

[Mr MacNeil]

Absolutely. Labour was against a fuel duty regulator, a rural fuel derogation and anything else that would have helped people in the Hebrides.

[Mr Reid]

What the hon. Gentleman is saying about the previous Labour Government is perfectly correct, but does he not have it within himself to congratulate the coalition Government? He knows that, time after time, I, along with my hon. Friend the Member for Caithness, Sutherland and Easter Ross (John Thurso) and other Liberal Democrats, put forward proposals in debates on Finance Bills for rural fuel derogations, and the Labour party rejected them. This Government are going to implement that. Will he not have the decency to recognise that and congratulate the Government?

[Mr MacNeil]

I certainly do have the decency to recognise that. I am very pleased that that announcement was made in the autumn. In fact, I think I text messaged the Chief Secretary to the Treasury to say how delighted I was. My only fear is that Liberal Members have lost the fierce urgency that they used to have in opposition, and are not really looking for a date on which we will see a rural fuel derogation. By Christmas we had heard that nothing formal had happened—that was one of the lines that came out. We want things to happen, and we genuinely need them to happen. The coalition agreement mentioned the rural fuel derogation. It did not mention the VAT rise, but hey, that was put in place quite quickly—by new year—yet we have not seen the rural fuel derogation.

The European Commission has been blamed, so I wrote to the Commission asking for the timetable, to see whether things are indeed being held back. However, the European Commission being the European Commission, it probably does not feel very accountable to democratically elected citizens in the member states of the EU. That is a matter for the European Commission. I hope that it is listening and will respond quickly, because we need action now. I need to know from the Government whether the formal stage has started. Just when will we see a rural fuel derogation? How long has it taken to get a rural fuel derogation in other countries? Those are the questions that I am being asked when I go back to the Hebrides, and I need answers from the Treasury now.

The rural fuel derogation is not at all like Christmas, because Christmas has come and gone, but where is the rural fuel derogation? I acknowledge that progress has been made, and I am pleased to see that. There are good intentions behind it, but thus far, it has been as effective only as the progress made by Labour. I hope that, in a year’s time, the situation will be very different. I hope that we will not have to debate the issue again in a year’s time, but I fear that we will. The Labour Government were famous for the ridiculous, obstinate answers that they gave us over the years—they were against giving any help at all to the islands—and my worry is that the Liberals have really lost the urgency of now. They should remember that there are elections in May, and that if there has been no action by then, the voting will hurt them.

18:40

[George Freeman (Mid Norfolk) (Con)]

I am grateful for this opportunity to speak in the debate, and I congratulate the hon. Member for Dundee East (Stewart Hosie) and his colleagues on raising this matter. I, for one, could listen to their wonderful brogue all afternoon.

[Stewart Hosie]

May I just say to the hon. Gentleman that I do not have a brogue or an accent? It is he who has the accent.

[George Freeman]

We can debate that another day.

The hon. Gentleman and his colleagues spoke eloquently about the needs of the rural economy, and I know that he will want to send his best wishes to one of the most exciting businesses in Norfolk, the English Whisky Co., which is doing great trade. As in so many debates, most of the suggestions that he and his colleagues made would lead to an increase in expenditure by the Exchequer, and, representing an English constituency, I find myself thinking, “English tax for Scottish voters.” His points on the rural economy were good ones, however, and I want to touch on the impact of fuel prices on that economy and offer some thoughts on how the Government might like to tackle the issue.

Fuel costs hit rural areas particularly hard, not only in Scotland but in England and Wales. In my constituency, where I am lucky enough to have four towns, 110 villages and a 130 mile boundary, the rurality is extreme. Fuel currently costs 130p a litre, which means that the average family are paying £70-odd to fill up their car. That is not a matter to be taken lightly. Families are hit particularly hard, especially those on low incomes who, it has been pointed out, tend to drive older, less efficient cars. Another group that is hit hard by high fuel costs is one by which the coalition has set so much store—namely, the people who are working hard to get out of welfare and into work. Small businesses are also affected, especially those in remote rural areas. They are crucial to the revitalisation of the rural economy.

The public sector is also affected by fuel costs. Many rural councils are hit very hard by their dependence on fuel, and this is another area in which rural councils in England have received particularly unfair treatment. Farmers are also hard hit, especially those growing commodity crops such as sugar beet and potatoes that require long-distance haulage. Hauliers are affected too, especially smaller, self-employed hauliers, who tell me that they are hit by the unfairness of the lack of a level playing field on which to compete with their European competitors.

[Rory Stewart (Penrith and The Border) (Con)]

May I make a plea to my hon. Friend to include a mention of dairy and livestock farmers, as they are also hit very hard by fuel prices in Cumbria?

[George Freeman]

My hon. Friend makes an excellent point.

On the wider economy, fuel inflation in rural areas not only affects rural communities but hinders our national economic growth. This goes to the heart of two of the coalition’s laudable objectives: the rebalancing of the economy and promotion of economic growth outside the City of London and our main metropolitan centres; and the attempts to help those sectors of the economy that do more than operate in the service, retail and housing industries—namely, the sectors that make things, transport things and sell things. Those sectors are hit particularly hard and we need to do all that we can to help them.

The reality that those on the Opposition Benches—particularly the Labour Benches—do not want to face is the fact that we have inherited a chronic legacy in our public finances that is costing £120 million a day in interest, which represents £20,000 of debt for every man, woman and child in the country. If we had not tackled the debt crisis, the interest payments would have been heading towards £70 billion a year. I repeat these figures because they need repeating to those on the Labour Benches. It ill behoves a serious party of government to come to the House, as those on the Labour Front Bench did today, and show no recognition of its part in causing this fiscal crisis. Labour Members have made no serious analysis of the rural economy and rural communities—[Interruption.] I wish that they would listen to what I am saying, rather than talking over it. They had no positive suggestions for how we might tackle the problem.

Fuel inflation risks strangling the economic recovery in our most marginal rural communities, but we cannot afford to do what we would like to do to address that. I therefore urge the Government, in accepting the constraints under which they are operating, to look carefully at the options.

[Claire Perry (Devizes) (Con)]

Does my hon. Friend agree that we need a sustainable solution, one that will work in bad times as well as good, rather than a knee-jerk reaction to what is clearly a problem for many rural constituencies, including my own?

[George Freeman]

My hon. Friend makes an excellent point. It is vital that we should not go for some short-term gimmick, and that we make a sustainable, serious commitment to helping rural communities and the rural economy.

My constituents and many in other rural constituencies have been encouraged by the Prime Minister’s continued espousal of the benefits of a fair fuel stabiliser. I defer to Ministers and experts in the Treasury on determining the right mechanism for that. We have a duty to make some gesture towards ameliorating this problem, and my plea to the Ministers and Treasury experts is that, whatever mechanism we go for, we focus on two groups in most urgent need: the rural small businesses on which we rely for economic growth and for the jobs in the rural economy on which we all ultimately depend; and the very lowest-paid employees who are struggling to get on and make something of their lives by earning a living. In my constituency, the average income is £17,500, and such people are hit hardest by this serious problem. I urge Ministers to do all that they can in the forthcoming Budget.

18:47

[Mr Mike Weir (Angus) (SNP)]

There has been a change since the general election. We spent the last Parliament trying to persuade the Labour Government to do something about this problem, and they steadfastly refused to do so. Now, we hear warm words from the new Government, but unfortunately we have yet to see any real action. That is the problem. Those on both Front Benches talked about the practicalities of this or that measure, and how they would have to look into them further, and I could hear the sound of things being thrown furiously at television screens up and down the country by people who are suffering now because of high fuel prices. It will be no good if it takes a year for any action to be taken, because, in that time, many of the businesses that are suffering now will no longer be in operation. That is important to the local economies of the areas concerned.

The Minister and others have talked about the need to pay down the deficit and to encourage growth. That is all true, but the growth in rural areas comes through small and medium-sized enterprises—the very businesses that are suffering most, as a result not only of fuel duty but of higher VAT and all the other factors affecting the economy. High fuel costs are strangling small businesses which have to transport goods into and out of their businesses by road, as there is no alternative. People have talked about transporting goods by rail, but in many areas such as my own, there is no realistic prospect of that happening. I have a rail line in my constituency; it goes up the whole of the east coast. Unfortunately, however, there are no freight depots on it. It is therefore impossible to use it for those purposes, and those businesses have to use the roads.

[Mark Tami (Alyn and Deeside) (Lab)]

The hon. Gentleman is making a powerful case. Does he agree that those same areas are also being hard hit by the rise in domestic oil prices? Are they not facing a double whammy in that regard?

[Mr Weir]

Indeed; I will come to that point later if I have time.

It is not only the businesses but their employees and the other people who live in the rural areas who are suffering in many ways. My constituency comprises small towns and villages, and many people have to travel to get to work. They have to use their cars to do so.

[Guy Opperman]

rose—

[Jim McGovern]

rose—

[Mr Weir]

I will not give way at the moment.

Many of my constituents have to travel to work, and they have no alternative to their car. There are bus services, but if we look at how people work today—many work split shifts and might have one or two jobs to make ends meet—we see that it is very difficult for them to get to their workplaces by bus. This places a great deal of pressure on family budgets. If we are talking about creating work and getting people back into it, we must make it easier for people to travel.

[Jim McGovern]

Will the hon. Gentleman give way on that point?

[Mr Weir]

I want to finish the point; I will give way to the hon. Gentleman in a moment.

As I mentioned in an intervention, The Guardian this morning features an article saying that bus routes are about to be slashed, and I understand that the rural bus rebate given to local authorities is also going to go. All that will cut back even further people’s ability to get to work by bus. I will now give way to the hon. Member for Dundee West (Jim McGovern) before he jumps up again.

[Jim McGovern]

I thank the hon. Gentleman for giving way. I must say first that I was disappointed that the hon. Member for Banff and Buchan (Dr Whiteford) criticised me for repeating a point and for not having been here earlier. I did explain why I was not here, but my main point is for the hon. Member for Angus (Mr Weir). I am sure he is aware that Stagecoach, a company owned by Brian Souter and one of the biggest donors to the Scottish National party, has said that the fuel price increases will help its business.

[Mr Weir]

The hon. Gentleman is bringing irrelevancies into this; we are talking about the real problems that rural areas face, and I am sorry that he does not understand that.

There is another problem with cars. The hon. Member for Caithness, Sutherland and Easter Ross (John Thurso) made the point that many people in rural areas have old vehicles and cannot afford to buy new ones. That brings several problems. Those vehicles are not only less reliable, but use more petrol than modern vehicles do and cost more to maintain and more to run in road tax and other things. People are suffering seriously by having to travel to work by car.

The right hon. Member for Torfaen (Paul Murphy) talked about what the devolved Administrations could do. The devolved Scottish Administration have introduced a business bonus to help with the costs of running small businesses. The right hon. Gentleman mentioned the ending of the Severn bridge toll. There is a huge cost in fuel for transportation, which is really hitting small businesses.

The hon. Member for Argyll and Bute (Mr Reid) mentioned the green argument, and I would like to address some of the related issues. Strangely enough, I agreed with a lot of what he had to say—I shall surely not make a habit of it!—but it seems to me that there is nothing green about strangling local economies in rural areas. Some say that people can move on to drive electric cars. I would like to see an electric car that would take me around my Angus constituency, never mind Argyll or Caithness and Sutherland, but the range is simply not available.

[Jim McGovern]

Does the hon. Gentleman have time to give way again?

[Mr Weir]

No, I do not.

There are real problems with fuel prices and they are strangling business in rural areas. They are an attack not only on the business itself, but on the family budget.

The hon. Member for Alyn and Deeside (Mark Tami), who is no longer in his place, mentioned home fuel oil. I appreciate that it is taxed differently from petrol, so it is a different issue, but he is quite correct to say that throughout rural Scotland, the escalating price of home fuel oil—used in many hard-to-treat homes that are otherwise unable to get central heating or any heating at all—is a huge problem, which is also hitting many people. These costs are devastating the rural economy.

The right hon. Member for Torfaen also mentioned supermarkets giving discounts on petrol, but in some ways that is a somewhat insidious practice. The Minister talked about people going to petrol stations, but in many rural areas such stations have ceased to exist. One of the hidden costs of living in rural areas is that people often have to travel many miles to fill up their vehicles with petrol in the first place. Cars cannot be driven right until the orange light comes on; if they are, they are unlikely to get to a petrol station for a fill-up and will be stranded somewhere along the line. If supermarkets offer discounts, people travel long distances to get there to fill up their cars, which has a knock-on effect on business in rural areas.

The key point is that the fuel issue is at the centre of the rural economy. Unless we sort this problem out, there will be no rural economy. We will not see a recovery of businesses that are strangled by rising fuel prices. Businesses will not survive for much longer if the price continues to rise as it has recently.

I think it was the hon. and learned Member for Sleaford and North Hykeham (Stephen Phillips) who talked about the Barnett formula. Frankly, that is completely irrelevant to this argument. If we had a fuel duty stabiliser, it would apply throughout the country. [Interruption.] The hon. and learned Gentleman is thinking about the derogation, which is a completely different matter: we are talking about two different systems here.

We have pushed for a fuel duty stabiliser to give certainty about the price, to allow hauliers, for example, to be able to quote in advance for a contract and know what the fuel prices are going to be. This will also allow people to look at their family budgets and know what they have to spend to get to work on a weekly or monthly basis. We need to remember that our constituents are not getting pay rises—in some cases, they are getting pay cuts—so they cannot cope with these rising prices, which impact directly on family budgets. For all those reasons, we need action now. It is all very well to talk about the problem and to look at the practicalities, but if this drags on into next year, I am afraid that many businesses will fail to survive.

18:56

[John Thurso (Caithness, Sutherland and Easter Ross) (LD)]

There are two issues in the debate, which I would like to try to disaggregate. One is the high premium paid in rural areas and the specific circumstances that apply to it. The other is the general high cost of fuel in the country. Let me deal with the two separately.

Briefly, the derogation for rural areas exists because there is a premium to be paid in those areas. Many Members have provided the arguments, so I will not go over them all again. However, I would point out that it exists not simply because there is a premium. I have researched the issue over many years, so I can tell hon. Members that I have often found that a certain petrol station in Sloane avenue is in the top three or four for prices. That shows that it is not simply a matter of high prices; the problem is that there is high price, a premium and a lack of public transport, coupled with the other deprivation typically seen in the more remote rural areas. It is not high prices alone, but the combination of all those factors that counts.

Secondly, as a number of hon. Members mentioned, I wrote a paper on this subject and it dealt with all the elements that cause worry—imperfectly, I am sure, but the hon. Member for Wallasey (Ms Eagle), who was the Exchequer Secretary at the time, took it seriously and her officials looked at it, so it was reasonable enough. I would like to think that the imperfections contained in that scheme are currently being ironed out and that we will shortly know what the Government intend to put forward.

I want to deal more fully with the other question of the generally high price of fuel. I commend to anyone who has not yet had a chance to read it the note produced for this debate by the Library. Among other things, it contains some very interesting facts. For example, it points out that for a number of years, the cost of motoring has actually gone down in this country in real terms, whereas the cost of public transport has by comparison gone up. One of my successors as Liberal Democrat transport spokesman often used to point that out.

It is also interesting to look at the percentage of tax take. The total has varied from a high of about 89% at one point in the ’90s down to the high mid-50s and now back up to 63%. The tax take in real terms today is about equivalent to that of 1997-98. We need to get our facts right and look at the issue in perspective.

We need to take account of some of the external factors. They must include the fluctuation in the oil price, which has once more hit $100 a barrel. A number of economists believe that that is merely a resumption of the upward trend that existed before the recession. It is entirely possible that the price will rise further, in which event we shall have to deal with the consequences of a high fuel price for our economy.

I congratulate the Government on giving thought to the introduction of a fuel stabiliser, although I have some doubts about the practicalities. There is only one thing worse than a stabiliser that works, and that is a stabiliser that does not work, so if we are to have one, let us ensure that it works. However, we might consider how the Government could, as it were, be removed from the equation. There are a number of possibilities, and I should like my hon. Friend the Minister to investigate them.

The first possibility involves VAT. When the last Government reduced it to 15% they also increased duty by 2p, and that remained when VAT rose again. Thus a relationship was established between VAT and duty. I suggest that the reverse should apply: that VAT on fuel should be 5%, in line with VAT on heating fuel, and that the duty should be altered to an amount that the Government considered appropriate. That would remove the variability that comes from the market. It would not affect the Treasury, and it would not have some of the deficiencies of the stabiliser. It is an imperfect mechanism, but it would be of some small comfort to know that when the price at the pump rose, it would be largely a result of what the oil companies were doing rather than what the Government were doing.

[Albert Owen]

I agree with the principle of a stabiliser. However, the Government talk of having “inherited” the duty increase. In 1997, the Labour Government inherited a Conservative proposal to raise VAT on domestic fuel and then “disinherited” it. Is the hon. Gentleman suggesting, as I am, that the Conservatives should “disinherit” the duty increase? That would help people in his area and in mine.

[John Thurso]

I am, in fact, presenting the Minister with a novel suggestion which I hope he will consider in the Treasury, and which might benefit us all.

Let me make another point about the current regime. I happened to note that if the escalator were introduced, it would be based on the retail prices index. Perhaps the Minister would consider basing it on the consumer prices index, which would be in line with the rest of Government thinking.

Finally, let me express a view on an issue that I studied in some detail when I was my party’s transport spokesman. I believe that the whole way in which we tax fuel is wrong. In my opinion we should not tax it at all, but should adopt a proper method of variable road user charging. Through that mechanism, we could both raise the amount of money that we wish to raise and incorporate all the fairness that we seek. It would require those who are most able to find alternatives, and who use the most congested roads, to pay the most, while allowing those with the most need—most of whom live in the least congested areas—to pay the least, and it has been suggested by most academics in the field of transport.

I have a funny feeling, Madam Deputy Speaker, that when I first raised the issue of road user charging in a Westminster Hall debate in 2001, it was you who responded from the Dispatch Box. I hope that the Government will seriously consider introducing such a system, because it would enable us to escape from the groundhog day of the fuel duty debate which comes round at least once a year, and adopt a sensible method of charging for road use that would be both green and economically efficient.

19:04

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

Diolch, Madam Deputy Speaker. I am delighted to have the opportunity to close the debate on behalf of the Plaid Cymru and SNP group. Our combined parties have campaigned on this issue for a number of years, not least in tabling amendments to Finance Bills in 2005 and 2008. It is somewhat disappointing that, in our first Opposition day debate of the Session, we must once again highlight the need for Government intervention to stabilise fuel prices.

Fuel prices are driven by the global price of oil and by domestic taxation. In the case of global oil prices, the trajectory is likely to go in only one direction, as oil is a finite resource. It is already being traded at over $100 a barrel. As the world economy recovers, the price will rise further as a result of increasing demand, especially from the emerging countries and, in particular, China. Volatility will only be exacerbated as we reach peak oil. Oil prices will also inevitably increase as a result of the long-term deflationary policies of the United States Government. Oil is traded in dollars, and a weakening dollar pushes up oil prices as producer countries try to make up for the shortfall of a currency whose value lessens. I echo the call of the French President, Mr Sarkozy, for a long-term agreement between oil-producing and consumer countries to offer more stability on prices.

Fuel prices are obviously influenced by domestic taxation, and it is with that element that we are concerned today. Duty on fuel in the UK represents about 65% of the price of fuel at the pump, if my sums are correct. Clearly, the higher the price of wholesale oil, the higher the tax receipts raked in by the Treasury. As is shown by an excellent House of Commons Library research paper, petrol duty in the UK is the second highest in the European Union, and the duty on diesel is by far the highest. While most other countries impose different levels of duty on road petrol and diesel, the UK’s rates are exactly the same, which means that the UK’s diesel prices are far higher than those of our European partners.

There are three general reasons for the need for a mechanism to stabilise fuel prices via control of duty. First, the volatility of fuel prices has far-reaching social and economic consequences, and we therefore need a mechanism to dampen the peaks and troughs. Secondly—as we have heard in a number of notable speeches today—surges in prices have a disproportionate effect on some sectors of the economy, some sections of society, and some geographical parts of the state. Thirdly, green taxes must be linked to clear environmental criteria, because otherwise the public will believe they are just another cash cow and there will be a loss of support for environmental taxation. That would be a disaster, in view of the challenges that we face as a nation and, of course, throughout the world.

Let me stress that we are not arguing for the introduction of something new and untested. Many OECD countries have mechanisms to regulate the price of fuel. France has a fuel regulator, and Canada even has a regional fuel stabiliser. If we were to adopt a similar system in the United Kingdom, I should like to advance a special case for south-west Wales.

In adopting our policy following the Finance Act 2008, the Conservative party’s 2010 general election manifesto stated:

“We will consult on the introduction of a ‘Fair Fuel Stabiliser’. This would cut fuel duty when oil prices rise, and vice versa. It would ensure families and businesses and the whole British economy are less exposed to volatile oil markets, and that there is a more stable environment for low carbon investment.”

I could not agree more, and I look forward to the support of hon. Members who stood for election on the basis of that manifesto commitment when the House divides later this evening.

We have had a very interesting debate, featuring many positive and informative contributions. The hon. Member for Dundee East (Stewart Hosie), in his usual ultra-detailed opening remarks, made a comprehensive case for the need for a stabilising mechanism. I urge those who missed the beginning of the debate to read his speech, and I hope one day to be able to rival his knowledge of these matters. He made the specific point that rising fuel costs constituted a significant economic headwind. Given the recent deliberations about the Government’s lack of a growth strategy, I humbly suggest that that is one idea that they should fully embrace.

The Minister defended the Government’s position admirably by blaming the previous Administration, but while we welcomed her comments about the rural derogation pilot and look forward to further progress, her suggestion that the devolved Governments could intervene to reduce the burden on families was somewhat weak. Much as I should like the Welsh Parliament to have the taxation powers that would enable it to intervene, this is a matter for the United Kingdom Government. They need to take the necessary responsibility and introduce proposals of their own, rather than blaming the previous Administration and placing the onus on the devolved Governments without giving them any power. That seems to have developed into a growing theme in recent months.

The hon. Member for Bristol East (Kerry McCarthy) confirmed that the Labour party opposes any stabilising mechanism. I am sure that colleagues who will fight Welsh Assembly elections and Scottish parliamentary elections in a few months’ time will remind electors of Labour’s policy.

The hon. Member for Morecambe and Lunesdale (David Morris) noted the problems that small companies—notably the haulage industry—face in his constituency.

As usual, the right hon. Member for Torfaen (Paul Murphy) spoke with great authority. He concentrated on the importance of small and medium-sized enterprises to the Welsh economy. I echo his views and look forward to his support in the Lobby later.

The hon. Member for Argyll and Bute (Mr Reid) highlighted the specific problems faced by communities in the Scottish islands, and I thank him for his contribution.

My hon. Friend the Member for Banff and Buchan (Dr Whiteford) made a strong case for the food processing industry in her constituency. She discussed the added burden that that industry faces as a result of spikes in the price of oil.

The hon. and learned Member for Sleaford and North Hykeham (Stephen Phillips) made a staunch defence of the Government’s position. We would welcome a derogation pilot in England, as he suggested, because if it worked in remote parts of England it would work in Wales and mainland Scotland, too.

[Albert Owen]

The hon. and learned Member for Sleaford and North Hykeham (Stephen Phillips) is not in his seat, but he said that only areas with devolved Administrations have been proposed for the pilot. The Isles of Scilly are, as we all know, in England. Wales has been left out, but surely the Isle of Anglesey would be the ideal place to experiment with such a derogation.

[Jonathan Edwards]

The hon. Gentleman makes a strong point. I am sure that the Assembly Member for his area, who is a member of my party, agrees with his comments.

My hon. Friend the Member for Na h-Eileanan an Iar (Mr MacNeil) discussed how fuel prices in his constituency have reached the £1.50 a litre mark. Having visited his beautiful constituency last week as a member of the Welsh Affairs Committee, I can inform my hon. Friend that his effort on that issue is appreciated.

The hon. Member for Mid Norfolk (George Freeman) highlighted how the rising fuel price hinders economic growth, especially outside south-east England and in those sectors of the economy that the UK Government are depending on, if they are serious about their stated aim of rebalancing the economy.

My hon. Friend the Member for Angus (Mr Weir) highlighted the huge problems caused to small businesses in his constituency. He pointed out the impact on disposable income for working families in his valid contribution.

The hon. Member for Caithness, Sutherland and Easter Ross (John Thurso) made an informative speech. He made a powerful argument about changing the VAT rate for fuel, and I hope that Ministers will consider his ideas.

In their joint economic declaration last week, the devolved Administrations specifically called on the UK Government to take action to counteract rising fuel and transport costs. The Governments of Wales, Scotland and Northern Ireland all highlighted how rising fuel costs form a significant economic headwind that undermines efforts to rebuild after the recent downturn. The declaration called for the postponement of the proposed duty increase planned for April this year. I am sure that all the Celtic Governments support the need for a fuel duty stabiliser.

In closing, I want to refer to those bodies that have contacted us to support our motion. We have received overwhelming support from many diverse organisations, such as the Farmers Union of Wales, NFU Cymru, the Freight Transport Association, the Road Haulage Association, the Federation of Small Businesses and the Countryside Association. That diversity reflects our point that ordinary families, businesses and workers across the UK acutely feel the effects of volatile fuel prices, although rising fuel duty will inevitably hit rural communities hardest.

Gareth Vaughan, president of the FUW, has written to say how “grossly unfair” it is that we in the UK pay more than any other country for our fuel, because of the “extortionate level of tax” imposed by the UK Government. He added that

“bearing in mind that there is a difference of as much as five pence per litre between rural and city garages in Wales already, the added fuel duty coupled with rising oil prices will be devastating to rural communities all over the UK.”

Jack Semple, director of policy at the Road Haulage Association, has stated:

“The Road Haulage Association welcomes Plaid’s and the SNP’s support for a fuel duty stabiliser”

since

“the volatility of fuel prices is a major issue for hauliers and, increasingly, for their customers.”

John Walker, the FSB’s national chairman, has also endorsed our approach, reminding us that

“Every extra penny spent at the pumps is a penny not being spent elsewhere in the economy…Small businesses want to grow...and create employment but the cost of fuel puts the brakes on their ability to drive the recovery.”

Finally, the FTA has stated:

“Lives and livelihoods up and down the country are suffering in the face of unsustainable and crippling fuel costs. This cost is unsustainable and...as part of the Fair Fuel UK Campaign, the Freight Transport Association and the Road Haulage Association, along with backing from the RAC, are asking government principally to scrap the fuel duty rise planned in April and introduce a methodology for stabilising fuel prices.”

It is not only organisations and individuals outside this place who have backed our campaign. In introducing his plans for a fuel stabiliser in 2008, the then shadow Chancellor—the current Chancellor—described the stabiliser as

“a common sense plan to help families, bring stability to the public finances and help the environment by making the price of carbon less volatile”.

In the light of those comments, people across the UK will ask why his Government oppose our motion today.

19:15

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

This has been an interesting debate, and I thank all hon. Members who have contributed. Fuel prices are undoubtedly of significant concern to hon. Members and the wider population.

It is fair to say that the issue is not new. My hon. Friend the Member for Caithness, Sutherland and Easter Ross (John Thurso) has referred to this debate being like “Groundhog Day”. He is a long-standing participant in debates on this subject, and he is influential in setting out the arguments for a rural derogation, to which I shall turn later. He also set out further proposals that may influence this debate in the years to come.

At the moment, there is a particular concern about fuel prices. We have heard today from hon. Members from all parties and from all parts of the United Kingdom about the difficulties that their constituents face because of rising fuel prices. It appears to cost more every time that people fill up the car, and the public understandably want us to do something about that.

[Mr Binley]

I have a message for the Economic Secretary from hauliers in my constituency, such as Wrefords and Butts. They understand what the Government need to do to put the deficit right, but they urge him to do something that was in our manifesto, namely bring forward a stabiliser. They do not understand why we have not done it already.

[Mr Gauke]

I will turn to the stabiliser in a moment. My hon. Friend has touched on a point that my hon. Friend the Member for Morecambe and Lunesdale (David Morris) and my hon. and learned Friend the Member for Sleaford and North Hykeham (Stephen Phillips) also raised, which is the deficit that we face. It is only by coming up with a credible plan to balance the books that we have managed to create the confidence needed for a recovery. To get there, we have had to make some tough decisions, such as raising certain taxes, including VAT, and cutting public expenditure in the teeth of opposition from the Labour party to all our plans.

One of the few things that we inherited that would reduce the deficit were the previous Government’s plans to increase fuel duty. We heard quite a lot from the Opposition spokesperson, the hon. Member for Bristol East (Kerry McCarthy), about VAT. It is worth pointing out that the Labour Budgets of 2009 and 2010 involved the following increases in fuel duty: in September 2009, there was a 2p increase; in 2010, there was a 2.76p increase; and there are 1p increases in 2011, 2012, 2013 and 2014. In total, the increase is about 9p a litre. We cannot dismiss those increases without knowing how we can fund any shortfall.

As the Prime Minister said over the weekend, we

“would love to see tax reductions…but when you’re borrowing 11% of your GDP, it’s not possible.”

So although I sympathise with the points made by hon. Members from all parts of the House, our decisions on tax must be viewed in that context, where every penny we increase fuel duty by raises an additional £500 million and if we cut fuel duty, that money will have to come from somewhere else.

[Dr Whiteford]

I ask the Minister the question that I have asked repeatedly in this debate: why should people who live in rural areas pay a disproportionate share of fuel taxation?

[Mr Gauke]

The two particular areas we have debated today are the fuel stabiliser and the rural fuel duty rebate, which this House has debated on a number of occasions and is clearly of close interest to a number of hon. Members. The Government have made no secret of the fact that we are considering such a rebate. People in rural areas do face particular challenges on petrol and diesel, as fuel prices there tend to be more expensive because of relatively high transport costs—a number of hon. Members have made that point. A lack of alternatives means that people in rural communities have little or no choice but to use the car, which is why we have announced our intention to introduce a rural fuel duty pilot. It will deliver a duty discount of up to 5p a litre on all petrol and diesel which, as the Economic Secretary said at the start of today’s debate, would save some drivers in rural areas upwards of £500 a year.

[Mr MacNeil]

The hon. Gentleman knows that I really welcome the rural fuel derogation and hope it comes soon. Will he give us any idea of when that might be?

[Mr Gauke]

As the Economic Secretary stated, the Government are engaged in informal conversations with the European Commission and we hope to be able to bring together our representations in a formal submission to take this forward, but this matter is not as simple as the hon. Gentleman might like it to be. We are considering the exact scope of the scheme, although the inner and outer Hebrides, the Northern Isles and the Isles of Scilly will certainly be included. I say to him, and to other hon. Members such as my hon. and learned Friend the Member for Sleaford and North Hykeham and my hon. Friend the Member for South Derbyshire (Heather Wheeler), that we can go ahead only when we have got clearance from the European Union. It is important to set out proposals that will achieve that clearance and we can then obtain the unanimous support of the 27 EU member states, which is what we require. Productive discussions are ongoing and we will of course update the House whenever we have any further progress. I hope that we will be able to provide a further update at the time of the Budget. Hon. Members should note, as, to be fair, the hon. Member for Na h-Eileanan an Iar (Mr MacNeil) did, that at least this Government are trying to make progress on this area. The hon. Member for Bristol East did not even make it clear today whether she supports our even trying to do something on this issue, and that is a remarkable position.

The fuel stabiliser proposal was raised by a number of hon. Members, and the hon. Member for Dundee East (Stewart Hosie), in particular, has taken a close interest in it for many years. There is an argument that higher oil prices will automatically lead to higher tax revenues. The Conservative manifesto said that the Office for Budget Responsibility would seek to review this policy to see what we could do in this area. We did ask the OBR to examine how the oil price affects our economy in order to determine how the Government could share the burden of high oil prices and see whether a fair fuel stabiliser could work in practice. The OBR’s assessment was that increases in tax revenue received from oil and gas production can be easily offset by things such as higher inflation, which would lead to higher benefit payments and a further drain on the Exchequer. The reality, as set out by the OBR, is that there is no sudden windfall for the Exchequer as a consequence of higher oil prices. None the less, we recognise the strains that this situation causes and we continue to examine a range of options, including the fair fuel stabiliser. It is right that we must ensure that whatever we do is not only fair, but affordable.

This Government understand the problems people are facing and are taking every action possible to help those most in need, but we also know that we have to act responsibly and ensure that we tackle the record national debt. The increases in fuel duty result from the previous Government’s proposals. Some people argue that we could abandon those proposals, but it is not clear whether that is the position of the Labour party. We need to strike a difficult balance, but our priorities are clear. We must get the economy back on its feet and we must have a private sector leading the recovery and creating new jobs. In contrast to our predecessors, we are seeking to address the genuine concerns that exist about rising fuel prices and we are determined to settle on a proposal that is fair, sustainable and fiscally responsible.

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

19:26

Division 191

Ayes: 14

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Labour: 6
Scottish National Party: 5
Plaid Cymru: 2
Alliance: 1

Noes: 303

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Conservative: 251
Liberal Democrat: 51

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

19:40

Division 192

Ayes: 297

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Conservative: 245
Liberal Democrat: 51

Noes: 135

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Labour: 125
Scottish National Party: 5
Plaid Cymru: 2
Alliance: 1
Independent: 1

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

Resolved,

That this House notes the dramatic increase in the world oil price to over $100 per barrel; further notes that there has been a significant impact on fuel prices in the UK as a result; recognises the impact this has on households and business; notes that the previous administration’s rises in fuel duty that have taken effect during the past year have further increased prices; further notes that the Government inherited the largest deficit in UK peacetime history, that the previous administration had no credible plan to deal with the deficit, that the Government has been clear that everyone will make a contribution to tackle the deficit but that the most vulnerable will be protected, and that the Government is considering a fair fuel stabiliser that could support motorists and businesses when oil prices are high; further notes that the Government in addition is taking forward swiftly its commitment at EU level to introduce a pilot scheme that would deliver a discount of up to 5 pence per litre in duty in remote rural areas such as the Inner and Outer Hebrides, the Northern Isles and the Isles of Scilly; and further notes that the Chancellor will update the House on all fiscal matters at the time of the Budget.

[The Secretary of State for Education (Michael Gove)]

On a point of order, Mr Speaker. I am grateful to you for your ruling earlier this afternoon that the phrase “rank hypocrisy” is unparliamentary language. I should therefore like to withdraw the phrase, which I used earlier today, and apologise to the right hon. Member for Leigh (Andy Burnham), who may have felt that it was directed at him. Under no circumstances would I wish to accuse him of any activity that was in any way covered by the use of unparliamentary language.

[Mr Speaker]

I am extremely grateful to the Secretary of State and thank him, on behalf of the House, for the apology he has given. As far as I am concerned, that is the end of the matter.

[Ms Angela Eagle (Wallasey) (Lab)]

On a point of order, Mr Speaker. Rumours are rife in the Press Gallery, and more widely, that the Government are planning to announce the result of their talks with the banks on bonuses and lending, otherwise known as Project Merlin, to TV stations and via a press release this evening. Do you agree with me that if the Government are doing private deals with the banks, they should have the courage to come to the House, that the House should be the first to hear about it and that announcing the outcome behind the backs of Members of this House would be totally unacceptable?

[Mr Speaker]

I am grateful to the hon. Lady for both her point of order and her advance notice of it. The Procedure Committee published its report on ministerial statements only last week, reaffirming the principle that important statements should be made first to this House. As a former Minister, and indeed an experienced parliamentarian, she will be aware of her options for taking up the matter. The Table Office will be open until the rising of the House, and it will not have escaped her notice that the Leader of the House is in his place and has heard what she has said.