Road Fuel Duties

Angus Brendan MacNeil Excerpts

Tuesday 13th September 2011 Westminster Hall

[Mr Brian H. Donohoe (Central Ayrshire) (Lab)]

I welcome you to your rightful place in the Chair, Mr Hancock, and I also welcome the Economic Secretary to the Treasury and my hon. Friend on the Front Bench, the Member for Bristol East (Kerry McCarthy), to this extremely important debate. It is also good to see that all parties in the House are, I think, represented here, and I look forward to what they have to say. I particularly want to hear what the Economic Secretary has to say about the high levels of road fuel duties in this country. I also want to put on record my thanks to the Speaker for allowing the debate to take place at this time.

This year, 2011, has been eventful in every sense of the word. It has perhaps been the most financially eventful year in the history of politics. It has been a rollercoaster. We have seen global financial turmoil, and the stock market has fluctuated at a rate that I have never seen before. We are seeing the beginnings of high unemployment levels, along with a rise in inflation, increasing transport costs, and tax changes that I have never witnessed in my time in the House—I have been here some 20 years. The past eight months have delivered a record-breaking run of price rises, those of petrol and diesel being among the most alarming.

Across the UK—there are, of course, highs and lows across the country—the average price of petrol reached a high in May of 137.43p per litre, and an examination of the relevant website just last night showed that the average price just now is not far from that. There is a differential of some 24p per litre between the highest and the lowest price across the country. I remember that when the Labour party was in government there was a near revolution when the truckers blockaded the refineries as a consequence of high fuel prices. Interestingly, we have not seen anything like that since, and I wonder why.

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

I am not certain from the tone of the hon. Gentleman’s voice whether he wants a blockade of refineries by truckers across the United Kingdom.

[Mr Donohoe]

The hon. Gentleman should know, as should all Members, that I would be the last person in this place to call for a revolution and civil disobedience.

There is absolutely no doubt, however, that the high fuel prices are at the point of driving people out of jobs, which is the most serious aspect of the matter. I shall give an example, which makes me angry, of the desperate situation of a nurse in my constituency. She has had to put up with a wage freeze for the next two years, her pension contributions have gone up, she has to pay double for parking at the hospital in Glasgow where she works, and she has to find £100 extra a month to get to and from work because of the high fuel prices. That proposition cannot feasibly be sustained for too long, but she cannot use public transport because of where she stays and where the hospital is. That problem must be looked at.

Regarding what the Government take per litre, I always remember a case from some years ago of a retailer who was determined to show the breakdown of the price of petrol and diesel. He was told that that was not the form, and the petrol company said that it would no longer supply him, for some obscure reason. When one considers that of the average 135p price of a litre of fuel, 81p is taken, one starts to understand the cost to the individual buying the petrol or the diesel. A good 60% goes on dealing with Government intervention in the form of fuel duty, and there is also VAT. Indeed, 20% VAT increases the price of petrol by 2.5%, putting something like 2.5p on it. In addition, outside of Government intervention in the price, there are the oil companies, and it is time to argue for a windfall tax on their profits. I know that there has already been a tax, which a lot of colleagues are very concerned about in relation to the oil companies’ continued investment, but I believe that the Government should look at the correlation between profit and price.

I have already argued that a significant portion of the price of petrol and diesel in this country is made up of the Government take, and I argue that it is higher than in most other European countries as a consequence of the high level of tax. Is there any opportunity to make the price cheaper? I am sure that the Economic Secretary will argue that in the present climate there is no leeway—no room for manoeuvre—but I suggest that there might be, and I shall come on to that later.

The reason for this debate is obvious: the price of fuel is crippling a great number of the people whom I represent and, I am sure, a great many of those represented by other Members here this morning. The Institute for Fiscal Studies has announced that the living standards of UK families will decline by more than 10% over the next three years, and it predicts that in real terms the typical household income will fall by 3.5% in the year to April, which will be the steepest drop since 1981. We understand that there is little room for offsetting falling living standards by cutting taxes, but the matter must be looked at. The level of tax and duties on petrol and diesel is cutting off the prospects of many struggling families and small businesses, and since I secured this debate I have had dozens of e-mails from small businesses with examples of just what it is doing to them.

The situation is also destroying job prospects, in particular among young people. I have already had a summit in my constituency, attended by the Secretaries of State for Work and Pensions and for Scotland. Youth unemployment is reaching levels that I never thought possible—it is as high as 70% in many areas. That cannot be sustainable and it is not helped at all by the cost of living today, particularly in more rural areas—I see that the hon. Members for Argyll and Bute (Mr Reid) and for Na h-Eileanan an Iar (Mr MacNeil) are present.

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[Mr Donohoe]

The blasé slogan “Either eat or heat” is becoming a reality faced by many of my constituents, particularly the elderly. The hon. Gentleman is right. It is a major concern, and it should concern the Government.

To return to the economic point, the industry should look into the fact that some oil providers supply their own forecourts with fuel at one price while selling the same fuel to a second retailer down the road at a higher cost. Something must be done about that. Anyone who travels two miles along the road from Prestwick to Ayr in my constituency can see it at first hand. Prices at forecourts using the same supplier vary 6p from one end to the other, which should not be allowed. Two-tier pricing is becoming a joke.

[Mr MacNeil]

I hear what the hon. Gentleman says about two-tier pricing, but I am sure that he will sympathise with areas of one-tier pricing, such as my constituency, where all prices are high and the closest cheaper fuel is a ferry ride away. Does he not feel that there has been too much inaction by successive Governments on tackling the problem?

[Mr Donohoe]

I agree entirely. It is interesting to note that Shetland has some of the highest petrol prices in Scotland, although half the United Kingdom’s total oil supply flows through two pipelines there. Another instance is Grangemouth, where the refinery for Scotland is based. The price of fuel there is also among the highest in Scotland. That does not stack up.

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

It is a pleasure to serve under your chairmanship, Mr Hancock. I congratulate the hon. Member for Central Ayrshire (Mr Donohoe) on securing this debate and on bringing this important issue before the House.

I represent a sparsely populated constituency, so I am well aware of the impact of high fuel prices on people and businesses. I represent many of the islands of the Inner Hebrides. The price of fuel on the larger islands, such as Mull and Islay, is typically 15p a litre higher than at a city centre supermarket, and on the smaller islands, such as Coll and Colonsay, the price is usually about 30p a litre higher. That is not due to any profiteering by local filling stations; Office of Fair Trading investigations have shown that there is no local profiteering. The main reason is the low turnover. The high fixed costs of running a filling station mean a high price.

[Mr MacNeil]

On that point, Donald MacNeil of the Burnside filling station in Daliburgh, South Uist, has told me that, if he paid somebody to sell fuel all day, they would not raise their own wage from the amount they sold, which is a reflection of why the price of rural fuel is so high. There is no profiteering. Apart from the high prices, we also know that there are distribution issues.

[Mr Reid]

I am grateful to the hon. Gentleman for his intervention. He is correct that there is no profiteering at the local filling station, although the distribution network, as he has indicated, might be another issue.

The high price obviously has a great impact on people’s living standards and on anyone trying to run a business on an island or in a remote rural area. I was therefore delighted when the Government announced their intention to pursue a pilot scheme under which there will be a 5p a litre fuel duty discount on many of the country’s islands, including all the islands of the Inner Hebrides and the Clyde. The Treasury is currently consulting filling station operators on the terms of the pilot scheme. Its original consultation proposals were met with significant concern by filling station operators, because they would have caused a cash-flow problem. I was pleased when the Government responded quickly to those concerns and revised their proposals in a way that removes the cash-flow problem.

The revised consultation proposals envisage two possible schemes—a distributor-based scheme and a retailer-based scheme. Of the two, it looks like the distributor-based scheme would be easier to operate, because the distributor has the resources to carry out the administration, which the small retailer would often find more difficult. I appreciate, however, the Government’s concern that a distributor-based scheme may fall foul of EU state aid rules and might not be approved by the European Commission. I hope that a distributor-based scheme can be devised that is acceptable to the Commission. If not, we would have to proceed with a retailer-based scheme.

The cash-flow problem in the original proposals has been overcome, but filling station operators are still concerned that it is not clear how they can prove to the Treasury that they are passing on the discount to the consumer. An essential principle of the scheme is that the 5p discount is passed on to the consumer. What retailers have asked me is whether the Government can provide clarity on how they should demonstrate that they are passing on the discount. That clarity would be welcomed because, as I say, the retailers are still not clear what they would have to do to comply with the scheme—and, of course, they are all keen to participate. If the islands’ pilot scheme is successful, as I am sure it will be, I would like it to be extended to remote areas of the mainland.

[Mr Reid]

I wholeheartedly agree with my hon. Friend. As she said, other EU countries are operating a similar scheme, so I am sure that it can be successful here.

[Mr MacNeil]

Will the hon. Gentleman give way?

[Mr Reid]

The Chairman asked for limited interventions and I have already given way to the hon. Gentleman.

I have accepted the Government’s view that we must have an islands pilot first, but after that I would certainly press for it to be extended to remote areas of the mainland.

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

I congratulate the hon. Member for Central Ayrshire (Mr Donohoe) on securing this important debate, a debate that is in my ears every week of the year. I think the hon. Member for Coventry South (Mr Cunningham) used the words, “under the cosh”—and we are certainly under the cosh.

Road fuel in my constituency is at ridiculous rates, and has remained at ridiculous rates in the lifetime of this Government and the previous one. Road fuel is between £1.50 and £1.57 a litre. My constituency has the highest fuel poverty in the UK. In Stornoway, at the north end, fuel is £1.50 a litre. At a small fuel station in South Uist, where I stopped on Friday in a rush to the ferry—I was almost late, as usual—I paid £1.57 a litre for diesel for my car.

In the Faroe Islands, which are halfway between the Hebrides and Iceland, the price of fuel is usually 50p a litre less. That was confirmed to me this morning: it is £1.06 a litre in Torshavn in the Faroe Islands. The price is not a function of geography; it is a function of Treasury taxation. [Interruption.] The hon. Member for Strangford (Jim Shannon) asked me whether I wanted to move. Given how we are taxed from London, as Scotland does not yet control fuel tax, we may have to move to all sorts of strange, weird and wonderful places to avoid the Sheriff of Nottingham tax behaviour from the London Treasury, regardless of which sheriff is in charge. Be it the red sheriff or the blue sheriff, the prices are much the same from London.

Iceland has prices that follow the Faroese model. It is interesting to note, and probably no coincidence that, despite its problems three years ago, Iceland has bounced back better. Its unemployment is lower than that of the United Kingdom and its GDP per capita is higher—Iceland is moving on and putting the past behind it far better than the UK. In my constituency, higher fuel costs are bleeding the economy dry.

Unlike in Iceland, which is able to move on, we are still being bled dry and left in a very weakened state. Higher fuel costs are pulling money from councils, health boards, the police, the fire service, small businesses, pensioners and families. The hon. Member for Coventry South made that point very well. He also mentioned rural postal vans. My father used to drive one of those postal vans. They were certainly a crucible of politics when passengers came on from whichever part of the island of Barra, where I lived when I was younger, and where I still live.

When I spoke in the House of Commons on 7 February —I went back over Hansard this morning—I said that Alec MacIntosh at Benbecula airport was haranguing me about the price of fuel and telling me to sort them out in London. He said the same thing yesterday morning as I boarded the plane from Benbecula to Glasgow. Fuel in Benbecula is about 10p a litre higher than it was when I spoke in the House of Commons on 7 February 2011; it is 19p a litre up on the price it was in Stornoway last year. Orkney, Shetland and the islands of Argyll are suffering the same, and Northern Ireland is probably suffering the same.

That is all the more galling when we think of the oil around the islands of Scotland. Shetland, of course, is pumping oil at the moment, as is Orkney. West of the Hebrides, we apparently have 25% of the UK reserve of fossil fuels—$1 million for every man, woman and child in the Hebrides—but we are paying 50p a litre more than the Faroese, who have no proven or found reserves at all.

When the Government came to power, they talked about a rural fuel derogation, and that was welcome. We are having problems, of course, because the Scottish Government do not control this issue and we are left with the red sheriff or the blue sheriff in London. The previous sheriff played Pontius Pilate to the issues of rural fuel. They were not interested in the rural fuel derogation; spurious and ridiculous reasons came about why they could not do anything. They sat on their hands. There was no fair fuel stabiliser, absolutely no rural fuel derogation, daft excuses and—still dafter—they had no apologies. There is still no apology from the previous Labour Government for their inaction.

This Government came in and their words were like a fresh breeze. Being the fair and earnest fellow that I am, I welcomed their words and their stated intentions. They blamed Europe for the slow progress of the rural fuel derogation and, being the fair and earnest fellow that I am, I was minded to believe them and accept them at their word. Then, of course, the green light came from Europe. The Government are now in danger of eclipsing the previous Government in their cynicism.

Treasury rules are now so cumbersome that they might actually cause small rural fuel stations to go out of business. The Government are looking for every device to slow this down when we know that in rural France, 10 km from a main population centre, people enjoy rural fuel derogations. What is the difficulty? Please get it into place. I warned the Liberals in February—in the House of Commons, as recorded in Hansard—that if the rural fuel derogation was not in place before May, they would suffer at the polls for the Scottish elections. They did suffer in rural areas and they are now known as the “not so famous five” in the Scottish Parliament.

There is a good argument, as I think the hon. Member for Central Ayrshire or the hon. Member for Coventry South said, for fixing fuel across the country, just as the prices of newspapers are fixed. If we are to have any fairness, we will have people across the UK paying the same amount of tax; my constituents, and probably those in Argyll, Orkney and Shetland, are paying the highest tax per litre of any part of the United Kingdom.

[Mr Jim Cunningham]

Does the hon. Gentleman agree that one of the best ways to try to sort the problem out—it is becoming like a ping pong game between the political parties—is to have a proper public inquiry into the price of fuel and fuel hoarding?

[Mr MacNeil]

I have some sympathy for what the hon. Gentleman says, and I will come on to distribution in a second, but we have played the patient game long enough. I think it was Martin Luther King who said that it was not the time for the “tranquilising drug of gradualism”. This is a time for action. At £1.50 and £1.57 a litre, people are hurting and hurting badly.

I am aware that I have taken six or seven minutes, Mr Hancock, and that others want to speak. I would finally like to mention fuel distribution. I have asked the Secretary of State for Scotland, the right hon. Member for Berwickshire, Roxburgh and Selkirk (Michael Moore), about distribution from refineries to retailers, and he has assured me that he is looking into the issue.

[Jim Shannon]

On distribution, I would like to underline how the issue affects Northern Ireland. The same oil that comes into Belfast goes out all over the whole of the province and the prices vary incredibly. Does the hon. Gentleman feel that there is a need to address how oil companies distribute fuel across the whole of Northern Ireland and the United Kingdom?

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[Mr MacNeil]

Yes, I could not agree more. I had a feeling that that was going to be a helpful intervention and indeed it was. As I was saying, I spoke to the Secretary of State for Scotland in the House and he has assured me that he will look into the matter of fuel distribution. I am not sure what progress there has been on that.

There is a difficulty between refineries and small rural fuel stations, and the habits of the distribution companies. They hold retailers very tightly and do not allow them the freedom to shop around and buy their fuel from different suppliers. A tanker in a certain area of the west highlands can move to a port further down and the fuel can be more expensive. It can go into another port and it can be cheaper. Batches of fuel, within a discharge at a small island port, can have different prices, depending on the amount that is bought. There is, in my view, predatory parasitical behaviour. I use those words with some thought. There is parasitical behaviour from fuel distribution companies when it comes to small rural and island areas.

I am not sure what the Scotland Office is managing to do, but I ask whether the Treasury might look into parasitical behaviour by fuel distribution companies, which are basically leeching off small, vulnerable island communities. That has to stop. At £1.50 to £1.57 a litre, there is utter anger at the price people are having to pay, and that in an area where the cost of living is generally higher—often thanks to the Co-op—where the wages are lower and, as I said, where we have the highest fuel poverty in the United Kingdom. I am making a plea to the Treasury.

The issue comes around every six months, but it is serious and affects people badly. If the powers were held in Scotland, we would not be coming every six months to talk to the Treasury or the Scotland Office in London, to make a plea about how tough things were in areas of Scotland.

I am aware that other Members want to get in, and some throats are being cleared around me, so I will leave it at that—I have said my piece. I am more than annoyed, and I hope that I am not back here in six months repeating part of my speeches of February 2011 and September 2011. We need the rural fuel derogation to come soon.

[Graeme Morrice (Livingston) (Lab)]

I thank my hon. Friend the Member for Central Ayrshire (Mr Donohoe) for securing the debate on what is clearly an important issue for all our constituents and the future of our economy. All right hon. and hon. Members will have had constituents approaching us and expressing their concerns about the current high cost of fuel. Individual constituents and local businesses have certainly raised it with me.

Fuel costs in West Lothian, where my constituency of Livingston is, are currently almost exactly in line with the national average: about £1.35 or a little more for a litre of unleaded, and £1.38 a litre for diesel—[Interruption.] The hon. Member for Na h-Eileanan an Iar (Mr MacNeil) confirms that from a sedentary position.

High fuel costs form an important element of the general increase in household outgoings currently experienced by so many families, in many cases coupled with frozen or reduced household incomes. A constituent recently contacted me to describe her own circumstances: she has not had a pay increase for two years, yet she is having to pay an extra £10 to fill up her car with petrol, meaning that she must now prioritise her journeys to remain within her budget.

Interestingly, recent AA research found that one in four of its members is now in the position of having to restrict the amount spent when refuelling and to prioritise car use. Alarmingly, that figure rises to 40% among those on lower incomes. Edmund King, the AA’s president, commented:

“Members tell us that driving to work represents the priority use of their car and that other trips have to suffer to make financial ends meet.”

With the Institute for Fiscal Studies warning recently that household budgets are set to be squeezed for a decade, it is vital that we get a grip on the issue of fuel costs now, so that consumers do not continue to suffer misery year after year.

Other constituents have expressed their frustration at being told that they should use public transport when they live in areas where public transport links are simply inadequate, or the costs are as high as for using their own vehicle. We touched on that earlier in the debate, and I do not want to go into the detail. The impact of high fuel costs is also seriously hurting businesses, however, and I want to focus the remainder of my remarks on that aspect of today’s debate.

We have seen some welcome, if limited, respite for consumers in the past few weeks, with pump prices in supermarket forecourts falling in response to a reduction in wholesale costs. Even if that is of some small assistance to individual consumers, it does little to help businesses and, in particular, haulage and transport companies. Speaking about that recent round of price cuts, the Road Haulage Association chief executive, Geoff Dunning, said:

“These price cuts can only ever be short term. What is desperately needed and would help everyone would be a reduction in the actual rate of fuel duty.”

He went on:

“However, January’s planned duty rise, combined with the proposed August increase will drive up fuel duty by a massive 10.4%. This will suck more money out of the economy and further undermine efforts to regenerate growth.”

Only last week, the Freight Transport Association revealed research showing that, on average, vehicle operating costs for rigid, articulated and drawbar vehicles had risen by 5.6% in the year to 1 July 2011 and that they have remained close to record, all-time highs since April this year. The largest contribution to the rise is the 12% increase for diesel over the same period. The FTA said that, while hauliers could ride out the recession by reducing margins and delaying vehicle replacements, they continue to feel the pinch and that it is likely that some hauliers might not be able to sustain their businesses in such circumstances.

That is of particular concern in my Livingston constituency because of its central position in Scotland, which makes it a popular location for businesses that need to transport goods throughout Scotland and often to other parts of the United Kingdom. Before the previous Budget, Dave McDougall, the chief executive of the West Lothian chamber of commerce, highlighted that point and the importance of getting the cost of fuel down for businesses in West Lothian. He said:

“Fuel prices are crippling all types of business. West Lothian is a location of choice for many companies because of its access to all of central Scotland. But this means that the effects are even worse for our Chamber members.”

He urged the Chancellor to take action to reduce the costs but, of course, we know that the 1p cut in fuel duty announced in the Budget was wiped out within weeks by soaring world oil prices.

Also speaking before the Budget, in March, the Federation of Small Business’s Scottish policy convener, Andy Willox, said:

“Scotland is suffering disproportionately due to the spiralling cost at the pumps.”

[Mr MacNeil]

The hon. Gentleman has just said that Scotland is suffering disproportionately. Would he prefer those powers to be held by the most democratic forum representing Scotland, the Scottish Parliament, or to be controlled by the Tory and Liberal Government here in London?

[Graeme Morrice]

I do not want to get bogged down in a debate on the constitution or the whole question of more powers for the Scottish Parliament. I certainly support the Scotland Bill, which we have been discussing, and fiscal autonomy for Scotland—but not independence, of course.

[Jim Dobbin in the Chair]

The impact has also been felt by retailers, with Asda stating last month that its customers were cutting back on trips to its stores because of high fuel prices. It estimated that families have, on average, £9 less disposable income each week compared with this time last year, largely due to increased petrol costs. So there is absolute agreement about businesses needing more help with high and rising fuel costs.

The all-important question is what can be done with road fuel duties to reduce the pressure on businesses and individuals and to bring about a halt to spiralling price rises. Fuel duty accounts for more than 60% of the pump price of petrol and just less than 60% for diesel, with VAT on top of that—the highest percentage of duty in the European Union. While the anger and frustration of individuals at suffering such high duties are understandable, once again the major concerns that business has are also clear. How can we expect businesses to compete on a level playing field with European competitors when they face such high taxes and duties?

When the Government increased VAT to 20% in January, they contributed to a further hike in fuel costs. It was the wrong tax at the wrong time, hitting families and businesses hard, just when they were least able to absorb such an increase. I support the calls to look at reversing the VAT increase for road fuel. We know it is feasible to obtain approval at the EU level for such a cut, but the Government refuse to entertain the idea because it is politically inconvenient for them to do so.

In a debate on motoring fuel costs here in Westminster Hall back in June, the hon. Member for Harlow (Robert Halfon) called for a commitment to no more petrol tax rises in this Parliament. He urged the Government to consider abolishing even inflationary rises on fuel duty during the Parliament. Such calls have largely come about as a result of the work of Fair Fuel UK, which is a broadly representative body and is making a strong case for reducing fuel costs for both motorists and businesses.

How do such calls square with the Government’s position? In opposition, the Conservatives made much of plans to “slash fuel duty”, as the headlines screamed at the time, with their fair fuel stabiliser. The concept of fuel duty falling when fuel prices go up and rising when prices fall, seems, on the surface at least, like a winningly simple and effective idea. Many of my constituents certainly believed so and contacted me about supporting it. However, the Office for Budget Responsibility, the Institute for Fiscal Studies and others have raised problems with that approach. It remains to be seen whether the fair fuel stabiliser will deliver what businesses and individual motorists want.

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[Kerry McCarthy (Bristol East) (Lab)]

I congratulate my hon. Friend the Member for Central Ayrshire (Mr Donohoe) on securing this debate. I am aware that the number of signatures on the e-petition that is doing the rounds calling for a debate on fuel duty is rapidly approaching 100,000. Since joining the shadow Treasury team, I have spent much of my time debating fuel duty with the Economic Secretary. It is indicative of just how strongly Members of Parliament feel about the matter, and of how much their constituents are affected by high fuel prices, that we have returned to the issue. It also suggests that the Government’s limited action so far—the 1p cut in fuel duty—has not done enough to satisfy people’s concern and its impact on their lives. For example, my hon. Friend the Member for Central Ayrshire referred to the impact on a nurse in his constituency.

The small increases in the cost of living and the small cuts add up. The cost of parking at a hospital may have doubled, and travel to work may cost an extra £100 a month. Such increases make the difference between people being able to get by on a modest income and being unable to make ends meet. Sometimes they must make the tough decision to give up work, because they simply cannot afford it. I want to allow plenty of time for the Economic Secretary to reply, so I will not elaborate further, but people are being hit across the board. Fuel duty rises and the cost of petrol are obviously a significant element in that.

Before the Budget in March, we called on the Chancellor to review the duty increase, and we welcomed his decision following the example of previous Labour Governments, who had cancelled or postponed rises in duty when circumstances suggested that would be a good idea because fuel prices were putting too harsh a burden on people. We welcomed the 1p cut in duty, but the savings lasted only a short time, and prices at the pump remained high. According to figures published by the Department of Energy and Climate Change this morning, the price of one litre of petrol has increased over the past seven days by 0.38p to 135p and diesel by 0.44p to 139.4p. That makes prices 20p and 22p respectively more expensive than in the equivalent week last year. I am sure that some hon. Members in rural constituencies will say that those average prices do not reflect the real prices in areas that are ill-served by petrol stations.

Clearly, the 1p cut has not been sufficient for motorists feeling the squeeze. That is partly because the Government added another 3p to the price of a litre of petrol by hiking up VAT in January 2011. Motorists are also facing the prospect of a 3p increase in January 2012, and a further increase in August 2012. That comes at a time when the Institute for Fiscal Studies is warning that the coalition’s tax rises and spending cuts will squeeze household budgets for the next 10 years, with families over the past year having suffered the largest fall in living standards for 30 years. Median net household income is down 3.5%, the consumer prices index stands at 4.4%, and the retail prices index stands at 5%, which is more than double the rate at which earnings are growing. The Office for National Statistics has highlighted that fuel costs are one of the most significant contributors to the CPI and are adding indirectly to the cost of our weekly food shopping, because distribution costs rise with fuel prices.

I need not remind hon. Members that fuel prices affect not only affect households, but are having a serious impact on businesses, which are already struggling in a flatlining economy. Only this month, the Freight Transport Association reported that the high cost of fuel remains the biggest cause for concern among haulage operators. A survey by the Federation of Small Businesses found that its members were most concerned about the fuel tax rise in January. It warned that small and medium-sized enterprises would be severely affected.

I shall move on to what the Government have said they will do about the problem. Before the election, great play was made of the fair fuel stabiliser. David Cameron said that he would introduce a mechanism to ensure that when oil prices went up, prices at the pump would go down and vice versa. That was widely seen to be unworkable, and has been proven by the fact that since coming to power the Government have not acted on it. The stabiliser in the form suggested by the Prime Minister and the Chancellor has not materialised. Even the Office for Budget Responsibility said that it would make fuel prices less stable rather than more stable.

The Treasury then moved to funding the 1p fuel duty cut with the windfall tax on the oil companies, which the Scottish First Minister described as cack-handed. It was introduced almost at the last minute, and the oil companies that it affected were not consulted. The reduced duty is funded by a rise in the supplementary charge on oil companies from 20% to 32%. The Government were then hit by evidence that that would lead to fewer new fields being developed, and greater reliance on foreign imports, which are, of course, more expensive. Under pressure, the Treasury announced in the summer that it would allow companies to offset some start-up costs against tax, but that only served to show the Government’s muddle on the fuel duty regime. They float various ideas, but when those ideas are subject to any scrutiny they do not stand up to cross-examination, and the Government have to make policy on the hoof.

That is partly why we tried to amend the Finance Bill to require the Chancellor to assess the impact of tax on ring-fenced profits. As I argued at the time, that seemed to be in line with the Government’s professed commitment to more consultation and greater transparency in tax policy, instead of coming up with measures without consulting industry and then having to make U-turns..

Another measure that the Chief Secretary announced and which seems to be running out of steam is the pilot scheme for the rural fuel duty rebate, which he announced last October. He was keen on that when he was in opposition, but it seems to be more complicated than the Treasury expected. The rebate would allow a discount of up to 5p a litre on petrol in the inner and outer Hebrides—

[Mr MacNeil]

There is talk in London of the scheme being complicated, but it need not be. It is happening in many places throughout Europe. The only complication seems to be the length of time it is taking to put it in place.

[Kerry McCarthy]

At the moment, it is suggested that the scheme will apply to the inner and outer Hebrides, the northern isles and the Isles of Scilly. The Minister will have to explain, but perhaps the delay is due to the fact that there is considerable pressure from other areas where fuel prices are very high. The hon. Member for Newton Abbot (Anne Marie Morris) is no longer in her place, but she made the case for her constituency in the south-west having a similar scheme.

People in the Scottish Highlands, where large distances need to be travelled and the scarcity of retail petrol stations adds to the cost of petrol, think that they, too, should be included in the scheme. Do the Government think that the scheme should be restricted only to the islands, or should it be extended? If the islands are a particular case, perhaps the Minister will clarify what that is. It is not clear whether the island populations would feel any benefit or how the discount could be delivered, and there have been warnings that such a scheme would risk putting petrol stations out of business.

Under the original idea, upfront costs would fall on retailers who might have to wait two months to be reimbursed by the Treasury. For many small retailers that is simply not viable, and if petrol stations in remote areas are forced to close, motorists will have to travel even further to fill up their tanks. I would appreciate a response from the Minister about how that could be avoided if the pilot schemes for rural islands are introduced.

--- Later in debate ---

[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.