Fuel Costs

Alan Reid Excerpts

Monday 7th February 2011 Commons Chamber

[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.

[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.

--- Later in debate ---

[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.

--- Later in debate ---

[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.

--- Later in debate ---

[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.