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The Economic Secretary to the Treasury (Justine Greening)
It is a pleasure to see you in the Chair, Mr Dobbin, into which you seamlessly moved during the course of the debate. First, let me congratulate the hon. Member for Central Ayrshire (Mr Donohoe) on securing the debate. As the shadow Minister, the hon. Member for Bristol East (Kerry McCarthy) said, the House has had a number of opportunities to debate the pressures that the high cost of petrol puts on individuals, families and businesses. The Government continue to view the issue as incredibly important, and the hon. Member for Central Ayrshire was right to raise it. In the time that remains, I will do my best to respond to the points that he raised, and those raised by my hon. Friends. I also hope to provide an update on some of the questions raised about the rural fuel duty discount.
Even though average pump prices fell slightly over the summer, there is little doubt that the cost of fuel remains a difficult issue and concerns many families and businesses across the country. The Government have recognised that for some time, and as hon. Members will know, in the Budget we announced a second rise in the personal tax allowance that aimed to take more people out of income tax altogether. In total, that benefited about 23 million or 24 million people who pay the lower rate of tax on their household income. The Government have worked hard to recognise and tackle the cost of living.
There were extensive debates in the House and the Finance Bill Committee about the cost of fuel and the Government’s plans to support motorists. I welcome the opportunity to revisit those issues, but before I address some of the points raised today I want to explain why the Government acted as they did in the Budget, and set out why the approach proposed by the Labour party is not only illegal but unworkable. Perhaps if I explain to the Chamber why I believe that to be the case, we can put the issue and the alternative proposals to bed once and for all, and perhaps I can save Labour Members from continuing with the hole they are digging in pressing for them, although that is obviously up to them.
The coalition Government recognise that motoring is an essential part of everyday life for many households and businesses. The cost of fuel affects us all and the Government recognise that the rising price of petrol has become an increasingly significant part of day-to-day spending. We know that high oil prices are causing real difficulties in trying to ensure that motoring remains affordable, and it is important that when shocks such as the steep rise in the price of oil occur, a responsible Government are able to listen, consider and respond.
The hon. Member for Bristol East mentioned the fuel duty escalator. That was introduced in the 2009 Budget by the previous Government and involved seven increases in fuel duty. The previous Government had planned for an above-inflation increase at the start of April—that was the position we inherited, and we had to make a decision about whether to go ahead with the pre-planned rises left by the previous Government. Had we gone ahead with those rises, pump prices would, on average, have been 6p per litre higher than they are currently. I take on board many of the points raised by the hon. Member for Central Ayrshire about the impact of high petrol prices, but he must recognise that had we done nothing, that extra 6p would only have created more pain for motorists and businesses. On top of that—let us be clear—the plans that we inherited would have introduced further above-inflation increases in duty in 2012, 2013 and 2014. On taking office, we had to come up with a plan to support motorists, because the previous Government did not have one—it was the exact opposite.
From the start, the coalition Government have been actively looking at how we can ease the burden on motorists, although that is incredibly challenging given the constrained and difficult fiscal situation that we inherited. One of the first things we did, as the hon. Member for Coventry South (Mr Cunningham) mentioned, was ask the Office for Budget Responsibility to look at how high oil prices flow through to impact on the economy and try to understand that. As the hon. Gentleman pointed out, we were concerned to understand the impact on businesses and jobs. That was part of our work in looking at how we could construct a fair fuel stabiliser, which I will come to in a moment.
As part of the Budget, we finally announced our plan to ease the burden on motorists with a £1.9 billion package. The Government listened to hard-pressed motorists and businesses and acted. What did we do? We acted by cutting fuel duty. The hon. Member for Central Ayrshire clearly wants us to go further in cutting fuel duty, but he should at least be able to welcome the fact that we have already cut fuel duty by 1p a litre from 6 pm on Budget day. We acted by cancelling the previous Government’s plan for a fuel duty escalator for the rest of the Parliament. We acted by introducing a fair fuel stabiliser that will better share the burden of high oil prices between motorists and oil companies, so fuel duty will increase by inflation only when oil prices are high.
Mr Donohoe
Does the Minister accept that there is a correlation between the duty and the increase in VAT? Indeed, the cost of the VAT increase to the motorist was 2.8p a litre. If the Government are to do anything to redress the imbalance, it is that amount, not the 1p that she talks of, that should be taken from the price, because the consequence of increasing VAT to 20% has been an increase in the price to the motorist of 2.8p.
Justine Greening
I take the hon. Gentleman’s point. The issue was raised of VAT being applied to the total price of fuel, including fuel duty. For clarification, that is in line with EU rules. That is the reason why that approach is taken. However, I will say two things to the hon. Gentleman. First, we have introduced a £1.9 billion package to support motorists. Secondly, I have heard a number of Opposition Members bemoan the increase in VAT, but they have had several chances in the Division Lobby to vote against that VAT rise and they have not taken them. I would be happy for any hon. Member who voted against the VAT rise to intervene on me now, but having checked Hansard—[Interruption.] Let me be clear that I am not referring to the Scottish National party contribution to this debate, because of course it called the vote. I think that both I and the hon. Member for Na h-Eileanan an Iar (Mr MacNeil), who represents the SNP, would recognise that the Labour party abstained in that vote and did nothing, despite its words. It never followed them up with action. Those Members owe it to their communities to be a little more frank about the fact that they waved through the VAT increase themselves.
Justine Greening
I did not hear the whole of that intervention. I am sure that if the hon. Gentleman repeats it, I can respond.
Justine Greening
Well, of course, that is one of the key measures that we had to put in place—[Interruption.] The hon. Gentleman laughs, but he is—
Justine Greening
I would rather be in my position, voting for things that I believe in, being clear to my constituents and accountable and being part of a Government who are tackling a huge fiscal deficit. I think it is the worst fiscal deficit handed to any incoming Government. It is one of the deepest seen in a developed country.
Justine Greening
It was not caused by the banks, actually. Let me explain to the hon. Gentleman what a structural deficit is. Even in the good times, the previous Government were spending more money than they were taking in taxation. That did not have to do with the banks. The banks simply dramatically exacerbated that problem. That was what we were talking about when we said that the previous Government did not fix the roof when the sun was shining. My point is that there is no point in Opposition Members complaining about the VAT rise when they have not taken the opportunity to vote against it. I think that most people in Britain would think that that was slightly disingenuous.
Justine Greening
I will give way again if the hon. Gentleman wants to keep digging his hole.
Graeme Morrice
But we are not in government. When the sun was shining, we built schools and hospitals and improved public services. We spent the money on the people’s priorities. The current Government are now cutting that.
Justine Greening
There are many people with schools in their constituencies—I can certainly think of one in mine—that saw none of that investment. Frankly, it is easy to spend, spend, spend. That is the Labour party’s legacy to Britain—a debt that is so high that it is costing taxpayers £120 million of interest every day. It is always the same. Let us not forget that the other legacy was unemployment that was 400,000 higher.
Justine Greening
I will give way to the hon. Gentleman, but then I would like to make some progress and talk about fuel, because that is clearly the point of the debate. However, I am happy to have a debate on the economy, because many people in Britain recognise exactly whose fault it is that the economy is in the state that it is in today—it is the fault of the Labour party.
Anas Sarwar
I give the Minister some credit for being able to rewrite history in the way that she has. Can she tell me why the Conservative party supported Labour’s spending plans before the financial crisis?
Justine Greening
You always know that you are making progress in an argument, Mr Dobbin, when people have to turn back to things that happened decades—[Interruption.] Opposition Members can make this into a political issue. I would like to make it into an issue that involves people outside this place. Frankly, if those in the Labour party had spent less time arguing among themselves, as we now know they were doing, and a little more time moving away from political stunts to manage the economy responsibly, perhaps the public finances in this country would not have been in the mess that they were in when they were handed over to us at the last election. [Interruption.] An Opposition Member says, “You are in government.” Yes, there’s a good reason for that—because the British people had just about had enough of the Labour party being in control of the purse strings. I think we all hope that it will be an awfully long time before it is given control of the purse strings again. [Interruption.] I now want to make some progress on fuel duty and I particularly want to —[Interruption.]
Jim Dobbin (in the Chair)
Order. Could I ask hon. Members to behave themselves?
Justine Greening
Thank you, Mr Dobbin. I want to make some progress on fuel duty, because that is the key concern in our minds today. The issue of hauliers was raised. The package that we introduced has meant that hauliers have been able to benefit on average by about £1,700 a year.
Mr MacNeil
I know that time is getting on—we meandered down a funny road there. I want to pull the Minister back to two important points. First, when are we likely to see the rural fuel derogation in place? That is very important. Secondly, does the Minister have any sympathy with my point of view that I am tired of the red and the blue sheriff and I would like to see some of this controlled in Scotland?
Justine Greening
We will update the House very shortly on what is happening with the rural fuel duty discount. We have made progress with the European Union. That will be good news for the hon. Gentleman. It will mean that we can get on with our pilot. I am sure that he very much welcomes that. In terms of other issues raised by the hon. Member for Argyll and Bute (Mr Reid), he will be aware that of course his islands will be part of that pilot. As he pointed out, we have within the Treasury met stakeholders—petrol retail associations and of course regional owners and operators—to talk about how we can ensure that any rural fuel duty discount scheme works effectively. I think that we are making good progress with that. Clearly, whenever we bring in such a scheme, we must ensure that we understand that it will do what we want it to do and that it will work in the way that we want it to work. We want it to be of help. We were therefore keen to sit down and work through some of the issues that came up, for example, in relation to cash flow. It is also important to ensure that the scheme is not administratively over-burdensome. We are making good progress with those discussions. We have made good progress with the EU. Perhaps we will be able to give further details of that in coming days.
Finally, I want to point out once and for all why it is simply not possible to go down the route of creating a separate VAT rate for petrol. I am surprised that I still hear the Labour party talking about that. We rejected that proposal for a number of reasons. One was that it would take six years—possibly more—to come into effect. The other was that it is illegal, because fuel is standard-rated in terms of VAT, as part of EU rules. If we want to reduce the rate of VAT on fuel, we need a revision of the VAT directive. In fact, we would have to have unanimous agreement from all member states, and the European Commission would have to approve. As I said, it could take six years or more. I say that because that is what the French found when they sought a reduced VAT rate. Just in case that is not enough of a problem, the EU has also agreed a moratorium on revising the VAT directive. That was agreed under the previous Chancellor of the Exchequer. That route is not the route to help motorists, whereas the route that we took of a £1.9 billion package to support motorists was.